South Liverpool Homes Limited Year ended 31 March Table of Contents

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2 Table of Contents Mission and Principles... 3 Board Members and Executive Officers... 4 Advisors and Bankers... 5 Report of the Board... 6 Statement of Responsibilities of the Board Group Highlights Five Year Summary Value for Money Assessment Independent Auditor s Report Group Income and Expenditure Account Association Income and Expenditure Account Statement of Total Recognised Surpluses and Deficits Reconciliation of Movements in Group s and Association s Funds Group Balance Sheet Association Balance Sheet Consolidated Cash flow Statement Notes to the Financial Statements

3 Our Mission SLH s mission is to make South Liverpool the place to be. Our Core Principles To deliver the mission, SLH has five key corporate objectives called the Every s which are the strategic drivers for all activity. The mission and the Every s are underpinned by a comprehensive and strategic approach to running the business effectively to meet the objectives set out in our Corporate Plan. The Group The SLH Group is made up of four organisations. South Liverpool Homes Limited (SLH) is the Group parent, a charitable community benefit society limited by guarantee and a housing association registered with and regulated by the Homes and Communities Agency. SLH s primary activity is housing and property management. SLH Regeneration Limited (SLHR) is a company which provides non charity works including fencing and boundary works primarily to South Liverpool Homes Limited. SLH Home Service LLP is a joint venture partnership between SLHR and Penny Lane Builders Limited which provides repairs and maintenance primarily to South Liverpool Homes Limited. SLH Projects Limited is a company which designs and builds development projects and has been dormant in the last year and has yet to commence trading. Principal Activities The principal activity is the provision of social and affordable rented accommodation for people in housing need. The SLH Group, however, has a wider remit to contribute to the overall sustainable regeneration of the area through the development and support of appropriate activities and initiatives. 3

4 Board Members All Board members have served on the Board throughout the year from 1 April to 31 March except where indicated. Ian Perry Board Chairman Robert Brown Vice Chair Steve Jennings John Rippon (resigned 22 September ) Doreen Knight Lawrence Dack (resigned 22 September ) Trevor Smith Mary Rasmussen Peter Bond (appointed 22 April, resigned 22 September ) Members to be appointed 22 September : Danielle James Graham Pink Stephen Casey Executive Officers Julie Fadden Chief Executive Claire Ryan Director of Business Assurance (appointed 1 February ) Wayne Gales Deputy Chief Executive Ian Cresswell Director of Risk, Information & Business Improvement (appointed 1 February ) Michael Whitehead Director of Finance (appointed 1 February ) An Executive Management restructure was completed in December and implemented from February. Anthony Russell, Director of Corporate Services (resigned 12 September ) Secretary: Anthony Russell (resigned 12 September ) Interim Deputy Company Secretary Wayne Gales (appointed 15 September ) Claire Ryan (appointed 14 May ) Deputy Secretary - Wayne Gales (appointed 14 May ) Registered office: Parklands Conleach Road Speke Liverpool L24 0TY Main Business Premises: Parklands Conleach Road Speke Liverpool L24 0TY 4

5 Advisors and Bankers External Auditors: BDO LLP 5 Temple Square Temple Street Liverpool L2 5RH Internal Auditors: Principal Solicitors: TIAA Limited Business Support Centre Gosport Business Centre Aerodrome Road Gosport PO13 0FQ Trowers & Hamlins Sceptre Court 40 Tower Hill London EC3N 4DX Principal Bankers: National Westminster Bank Liverpool City Office 22 Castle Street Liverpool L2 0UP Principal Lenders: The Co-operative Bank plc 1 Balloon Street Manchester M60 4EP Registered with the Homes and Communities Agency as a social landlord L4230 Registered at Companies House number IP Registered Community Benefit Society No 31210R 5

6 Report of the Board The Board is pleased to present its report and the audited financial statements for the year ended 31 March. Performance for the Year For the year ended 31 March, the Group made a surplus of 3.6m (: surplus of 3.3m). This surplus was credited against Revenue Reserves. Right to Buy - This year 442k in proceeds were received through the sale of right to buy properties. The thirteen properties sold at an average discounted price of 34k. Shared Ownership Sales - This year 12 apartments have been sold from the development at Booker Avenue. Total proceeds of 742k were received for the varying percentages of the 12 units sold out of the 16 built. Land Sales - This year a surplus of 202k arose from the sale of land arising from the development detailed in Note 32. Turnover - The year ended 31 March has seen an increase in Group turnover to 17.6m (: 16.9m) due to an increased rental income. The majority of turnover represents rental income from social housing properties. The scope to increase rent is dictated by the rent restructuring framework issued by Central Government. This framework is designed to ensure social housing properties of a similar size and within the same area yield a similar rent. SLH increase its rent in line with the rent restructuring guidelines. Operating Costs have increased to 13.1m (: 12.6m). This is mainly due to increases in management costs, routine and planned maintenance. Cash and investments totalled 6.5m as at 31 March (: 7.1m). At 31 March debt totalling 25.2m was drawn. 6

7 The Board and Management have agreed a Performance Management Framework which is part of our approach to Business Assurance; it exists to manage performance across the Group. Performance highlights for /15 included: A copy of our annual report to customers can be accessed through our website. 7

8 Significant events during the year include: Total spending during the year on repairs and home improvements of 6.2m. This included: 267 voids repaired/improved 13.2k responsive repairs carried out to our homes Donations, Sponsorship and Support to local agencies SLH made contributions of 42k of support to local agencies. SLH support local agencies within a total sum agreed by the Board where the agency s aims and objectives fit closely with its own. Loan Facilities The Association had loan facilities with Co-operative Bank plc and Nationwide Building Society at the year ended 31 March. Loan debt at that date was 25.2m. In June, the loans with Co-operative and Nationwide Building Society were repaid with new loans from a 30m facility with Yorkshire Building Society. In August, SLH secured a 15m 30 year fixed rate loan with M&G Investments and repaid 15m to Yorkshire Building Society. Pension Costs The Group participates in a number of pension schemes from the Social Housing Pension Scheme (SHPS) and the Merseyside Pension Fund (MPF). Two of these are final salary schemes, offering good benefits for employees. The Group has contributed to the schemes in accordance with levels, set by the actuaries. An actuarial valuation of the SHPS was undertaken at 30 September and revealed a shortfall of assets to cover expected liabilities. On the advice of the actuary from the 2011 valuation, scheme contributions increased from 1 April 2013 for both SLH and the employees in the scheme. A further increase in future service contributions and past service deficit contributions will be implemented from April 2016 for SLH and employees. The Group also offers Career Average and Defined contributions schemes from the SHPS. A defined contribution scheme from the Pensions Trust was introduced in the year for auto-enrolment at SLH. Future Developments There are a number of key development projects that the Board supports. These include the following: Development of a further 28 properties with grant funding from the Homes and Communities Agency for the -18 programme. In /15, SLH completed 40 homes for the programme SLH is part of the Liverpool Housing Consortium with Liverpool City Council for new build. SLH has built 16 homes for shared ownership in the year /15, with 12 homes sold in /15 and the remaining being sold in /16 SLH also acquired two properties in the year through mortgage rescue and the buy back policy Charitable Status SLH is a community benefit society with charitable status for corporation tax. Decent Homes All of the properties meet the decent homes standard. Payment of Creditors In line with government guidance, our policy is to pay purchase invoices within 28 days of receipt, or earlier if agreed with the supplier. Health and Safety The Board is aware of its responsibilities on all matters relating to health and safety. The Group has prepared detailed health and safety policies and provides staff training and education on health and safety matters. Board discuss compliance with health & safety obligations quarterly. Commitment to Partnership Working 8

9 Board commitment to broaden partnerships is vital to the success of our business and for the regeneration of our community. The last financial year has seen SLH continue partnership working with both Penny Lane Builders and Sure Maintenance. Other key partnerships have been formed as part of the redevelopment project in Speke and Garston which sees the SLH Group working with Liverpool City Council, Liverpool Housing Trust, Countryside Properties PLC and Lovell Partnerships Limited. SLH Board review annually the performance of SLH s partners, contractors and suppliers. Employees The Board believes that SLH s success is linked to the quality and commitment of its employees. The Group s ability to meet its objectives and commitments to tenants, the community and its wider stakeholders in an efficient and effective way depends upon the contribution of its employees. Information on the Association s objectives, progress and activities are shared through regular briefings and meetings. In, SLH retained its position as the number one not for profit company in the UK to work for as part of the Sunday Times Top 100 list. SLH has a performance and personal development appraisal system linked to the Association s agreed objectives and priorities. Staff and managers have monthly joint reviews of progress throughout the year. The appraisal system informs the Company s learning and development plan reflecting the training needs of employees to enable them to deliver SLH s objectives. SLH is committed to equality and diversity in the recruitment and retention of all of its employees. SLH particularly welcome applications for employment from people with one or more of the protected characteristics of the Equalities Act These are given full and fair consideration for all vacancies, having regard to their particular aptitudes and abilities. In the event of an employee acquiring a protected characteristic, every effort would be made to enable the person to continue their employment within the Company. It is SLH s policy that training, career development and promotion opportunities should be available to all employees. 9

10 Governance SLH is governed by a Board consisting of nine directors. The core purpose of the Board is to determine vision and strategy whilst also directing, controlling and scrutinising SLH, and its subsidiaries, affairs and performance. Operational management is the responsibility of SLH s Executive Team who remain accountable to the Board. It is the ultimate responsibility of SLH Board, to provide clear powers to direct and if necessary intervene in the governance arrangements of SLH Regeneration (SLH R). SLH Regeneration Limited Board comprises four directors three of whom were appointed by the SLH Board. Two independent members will join from September. The SLH Projects Limited Board comprises one director appointed by the SLH Board. The rules of SLH allow the Board to delegate authority to Committees. SLH operate two committees: Governance & Remuneration and Audit & Risk. Both the committees have separate Terms of Reference which set out the powers and responsibilities delegated to them by SLH Board. In /15, Board approved it s Admitting New Shareholders Policy. All shareholder applications must be from applicants willing to be nominated as full Board members at the Annual General Meeting. All SLH shareholders are members of the SLH Board. Governance Review An independent governance review was undertaken in. The purpose of the review was to strengthen SLH s governance arrangements by ensuring SLH s Board deliver effective control, leadership and sustain an environment which protects both SLH, our assets and our customers. The review came during SLH s 15th year and supported a transition from a traditional stock transfer organisation into a mature organisation which is governed by a Board whose skills and competencies reflect our current and future business. Some of the changes implemented from the governance review included: Adoption of a skills matrix for Board membership Reviewing SLH s suite of governance documents Updating SLH s Rules of Association As part of this review, three new members join the Board in September. An independent member was also appointed to the Audit & Risk Committee in. Code of Governance Following an annual self-assessment, the Board is pleased to report that SLH comply with the principles and provisions of its adopted code of governance, the National Housing Federation (NHF) Code of Governance (revised 2010). The Board is committed to integrity and accountability in the stewardship of the Company s affairs. Work is underway to adopt the NHF s Code of Governance which will be completed in time for the /16 accounts. The Board is also pleased to report SLH remain compliant with the required outcomes and specific expectations of the Governance and Financial Viability Standard and therefore continue to maintain the highest possible ratings, G1 and V1 from its regulator. Audit & Risk Committee The Board delegates authority to two Committees each having its own Terms of Reference, reviewed in. The Audit and Risk Committee has five members. The overall purpose of the Committee is to ensure that the Group s internal control system operates satisfactorily, and that each organisation within it has adequate risk management arrangements in place. The Committee s duties include: Reviewing the Annual Financial Statements before submission to the Board Considering Internal Audit reports and findings and monitoring progress 10

11 Overseeing the risk management framework and regularly review the risk maps and other risk management arrangements of the Group advising the Board on the appointment or removal of Internal and External Auditors Governance & Remuneration Committee The Governance and Remuneration Committee has four members. The overall purpose of the Committee is to ensure effective governance arrangements are in place at SLH and relevant assurance of this is provided to the SLH Board. The Committee is also responsible for Board member and Executive remuneration across the SLH Group. Its duties and responsibilities include: Supporting compliance with the following standards, giving clear explanation where SLH choose not to comply. o National standards set by the social housing regulator the Homes and Communities Agency (HCA). o National Housing Federation s Excellence in Governance code (). Implementing an objective process for the review of Board and Committee member remuneration, making recommendations for remuneration to Board. Supporting Board succession planning including recruiting and selecting new Board members and ensuring effective systems of personal development and appraisal are in place. Performing an annual review of the Board skills matrix. Agreeing the SLH Group s pay policy. Considering the Group Chair s recommendation for the Chief Executive s remuneration including pay, pension, bonuses, and reviewing other terms and conditions of employment, ensuring they are independently reviewed. The Committee will make recommendations for approval by the Board. Resident Involvement SLH is committed to involving tenants and the community in how their homes and neighbourhoods are managed. Community involvement is vital to delivering better services and making South Liverpool the place to be. There are a variety of ways to get involved with SLH. Scrutiny Panel - the Scrutiny Panel is a group of tenants who work on behalf of all tenants to ensure that the services provided are achieving high levels of customer satisfaction and represent good value for money. The panel meet monthly to review performance and in /15 completed two service reviews Editorial Panel the panel oversee every edition of SLH s Bulletin Magazine Task and Finish groups - these groups look at particular aspects of a service area with the aim of improving the way they are delivered to tenants and making sure that views are taken into account before any changes to the way services are delivered are made Engagement Advisory Group - the Engagement Advisory Group is a group of tenants who help and advise the Neighbourhood Engagement Team in their decision making regarding informal engagement activity, for example classes such as sewing and gardening, events such as Neighbours' Day, and how this activity can have the maximum impact for those that take part Neighbourhood groups - a neighbourhood group is a group of likeminded people who get together because they want to tackle issues that affect them 11

12 Statement of Internal Control The Board has overall responsibility for establishing and maintaining the 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 and Communities Agency. Scope of Responsibility The Chief Executive, as the Accountable Officer, is responsible for maintaining a sound system of internal control that supports the achievement of the Group s policies, aims and objectives as determined by the Board, while ensuring compliance with statutory duties and responsibilities, and safeguarding funds and assets, ensuring they are used in an effective, efficient and economic manner. Purpose of System of Internal Control The Group s system of internal control is designed to manage rather than eliminate the risk of failure to achieve policies, aims and objectives; to comply with statutory requirements; and to safeguard, and make best use of, public funds and assets. It can therefore only provide reasonable and not absolute assurance of effectiveness. 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 and is consistent with the expectations of the Homes and Communities Agency standard on Governance and Financial Viability. The system of internal control continues to be maintained through an ongoing process designed to: Identify and evaluate principal risks to the achievement of the Group s policies, aims and objectives Evaluate the likelihood of those risks being realised Mitigate the impact should they be realised Manage these risks efficiently, effectively, economically, and as far as is reasonably practicable The Internal Control Environment The Group has a Corporate Plan, developed and reviewed annually with extensive engagement with Board members and the Executive Team. The Plan forms the basis for the performance management cycle that details the annual performance expectations of employees and Board members. The corporate objectives continue to be communicated to employees through regular team and performance reviews. This process has ensured that work plans have remained relevant whilst providing clear links to corporate objectives, for example: Demonstrating the contributions made by employees to the achievement of the Every s Promoting the pursuit of value for money and the identification of efficiency savings SLH carried out a major review of the Corporate Plan in. Project 2022 aimed to support SLH to develop an intelligent and informed future direction by assessing the current position, discovering what the business wanted to be in the future and identifying how it would get there. Project 2022 took many forms: Three Board away days were held to formulate ideas and direction from members on how SLH should move forward, including reviewing the existing mission An understanding from stakeholders on how they believe that SLH could enhance our offer to Speke Garston whilst also identifying opportunities to work together An understanding of the future aspirations of customers both for themselves and for SLH through the bi-annual STAR survey. This was followed with a focus group discussing the STAR results in greater detail All colleagues taking part in the Corporate Plan review at the Colleague Conference. A number of ideas were generated which have been taken forward through Our Journey to 2022 Managers reviewing results from the Colleague Conference to help start to shape how the Corporate Plan will look 12

13 A stress testing workshop with all members and the Executive Management Team to identify how the future direction identified through Project 2022 will stand up against political and economic changes Using an analysis of past and current trends to estimate what the demographic of Speke Garston will look like in 2022 The Performance Management Framework has remained in place throughout the period and has been the mechanism for cascading corporate strategy into individuals work goals and reviewing their performance and development. Use of Performance Monitoring During the period the well-developed procedure for reporting performance management has continued, including: The Compliance & Performance Team ensuring timely and consistent evidence of performance against targets is available to colleagues, management and Board members The Group s Key Performance Indicators benchmarked via HouseMark to ensure effective scrutiny of each area HouseMark presentation to the Group Management Team on the quality and cost of services using 2013/14 data Performance reports reviewed at Scrutiny Panel monthly and at Board quarterly Executive Management Team review of performance data each month The Group has Financial Regulations in place to define the processes and responsibilities for budget management. Effective Governance Arrangements The Group s two Committees have continued to support and provide assurance about the quality of governance. The Committees have: Monitored the ongoing effectiveness of the internal reporting within the Group Considered reports from internal and external audit Made, as appropriate, recommendations to the Board on the terms and conditions of employment The Audit and Risk Committee in particular has continued to obtain assurance on the adequacy of the risk management framework and the associated internal control environment; scrutiny of the Group s financial and non-financial performance to the extent that it affects the Group s exposure to risk as well as overseeing the financial reporting process. Specifically, during the period this Committee has: Reviewed internal audit reports and issues arising and sought assurance that action was taken through a mechanism of exception and follow up reporting Approved internal audit s annual plan Ensured effective arrangements between internal and external audit Met with and considered the reports of external auditors, reviewed the financial statements, and monitored management action in response to issues raised Reviewed and obtained assurance of Void Maintenance, Development Appraisal, Risk Management Health & Safety, Cash Collection, Value for Money, Risk Management Integration, ICT Network Security, Governance Performance Monitoring, Governance Anti-fraud, Allocations and Lettings, Payments, Customer Engagement Continued to review compliance with SLH s Probity Framework, signing off relevant returns such as Fraud and Gifts & Hospitality registers at each meeting The Group recognises that effective Board member appraisal is an important element in good governance and continued to carry out appraisals during the year. These went to inform the Board s learning and development plan. 13

14 Robust Risk Management Processes The Group s Risk Management Framework forms part of the approach to Business Assurance; it exists to identify, manage and reduce risk across the Group to support delivery of Our Journey to The framework: Provides a systematic process of understanding, evaluating and reducing risks in order to maximise our chances of achieving our objectives Provides Board with the necessary assurance that risk is being managed effectively Clearly defines risk in relation to the corporate planning process Produces real time, accurate and relevant risk information Ensures compliance with the Homes and Communities Agency s (HCA) Governance and Financial Viability Standard Ensures that the control framework is robust enough to withstand external scrutiny and validation to comply with the three lines of defence model The framework is managed by the Risk Management Forum, a group made up of several members of the Executive Management Team. The forum met quarterly and reviewed the risk maps as a standard agenda item, as well as considering other items such as changes in legislation, health and safety, environmental scanning, business continuity, and any other management or operational issues. The risk maps were approved by Audit & Risk Committee every quarter, and by their respective Boards every six months. Risk management is a standard item on all Board and Committee papers and Executive Management Team meetings. Board completed an annual stress test of the risks contained within the strategic risk map. The exercise detailed the Board s response to the crystallisation of multiple risks together. This ensures that Board better understand what stresses could put our business at risk, and that they have rehearsed a range of difficult decisions, and have developed a detailed contingency plan. At the start of the calendar year, in line with the Corporate Plan refresh, Board approved the risk appetite statement. The document outlines the current position in terms of finance, governance and growth, and defines the level of risk that we are willing to take in pursuit of our Corporate Plan objectives. The SLH strategic risk map was subject to a validation check by Hargreaves risks management consultants. This ensured that there were no blind spots in the map, and that the risks within it have evolved throughout the year in line with the changing requirements of the sector. Hargreaves provided a statement to Audit & Risk Committee and Board to give further assurance that risk is being managed effectively. Identifying and Evaluating Key Risks During the course of the year, the following key strategic risks were reviewed and suitable risk reduction strategies were implemented. Rent Arrears The Group has performed a detailed analysis of the actual and expected effects of Welfare Reform. The changes include non-dependant deductions, size restrictions to working age and Universal Credit with housing benefit paid direct to tenants. The Association is adopting a number of strategies to mitigate the effects of these changes and provide effective support to customers through times of change. Pensions The recent valuation of the Social Housing Pension Scheme (SHPS) underlines that increased payment will be needed by both employers and employees to address the undervaluation of the fund. In the longer term, SLH will need to make decisions about how to mitigate the exposure to rising pension costs, and maintain an attractive employment package to recruit and retain high quality staff. 14

15 Financial instruments The Group s principal financial instruments comprise sterling cash and bank deposits, bank loans and overdrafts, other loans and trade debtors and trade creditors that arise directly from its operations. Cash flow interest rate risk Interest bearing assets comprise cash and bank deposits, all of which earn interest at a fixed rate. The Group s policy is to maintain other borrowings at between 60% and 100% fixed rates to provide mitigation from any adverse movements in interest rates and also allow some benefit from the relatively low cost of LIBOR funding. The directors monitor the overall level of borrowings and interest costs to limit any adverse effects on financial performance of the Association. Inflation There is a risk to the business of inflation particularly for commodities and of its impact on rent levels and costs. The Board monitors inflation indices and mitigates inflation changes through the value for money and procurement strategies. Rental Income In the Government s budget statement of 8 July, the Government stated its intention to mandate a reduction in social housing rents (including affordable rents and social rents) by 1% each year for the next four years, from April Tenants living in social housing and earning more than 30,000pa ( 40,000pa in London) will be required to pay market rent. A revised Business plan has been produced reflecting the future loss of income. The directors are actively reviewing options to mitigate the effect of the reduction in income. Control Environment and Internal Controls The processes to identify and manage the key risks to which the Group is exposed are an integral part of the internal control environment. Such processes, which are reviewed at least annually, include strategic planning, the recruitment of suitably qualified and experienced executive directors and senior staff, regular performance monitoring, control over developments and the setting of standards and targets for health and safety, data protection, fraud prevention and detection, and environmental performance. The Board is of the opinion that no weaknesses in internal control have arisen which resulted in any material losses, contingencies or uncertainties that would require disclosure. Information and Reporting Systems Financial reporting procedures include a 30 year Financial Business Plan and detailed budgets for the year ahead. These are reviewed and approved by the Board and monitored throughout the year. The Board also receives reports on key performance indicators to assess progress towards the achievement of key business objectives, targets and outcomes. The outcomes of these reviews are reported to the Board throughout the year. Monitoring Arrangements Regular management reporting on control issues provides assurance to successive levels of management and to the Board. It is supplemented by regular reviews by internal audit that provide independent assurance to the Board, via the Audit and Risk Committee. This committee ensures that corrective action is taken in relation to any significant control issues. Going Concern The Association s financial statements have been prepared on a going concern basis which assumes an ability to continue operating for the foreseeable future. Government s announced intentions have led to a reassessment of the Association s 30-year plan and other budget/forecast data as well as an assessment of imminent or likely breach in borrowing covenants. No significant concerns have been noted. We consider it appropriate to continue to prepare the financial statements on a going concern basis. Disclosure of information to auditors 15

16 At the date of making this report each of the Board members, as set out on page 4, confirm the following: So far as each member is aware, there is no relevant information needed by the Group s and Association s auditor in connection with preparing their report of which the auditor is unaware, and Each member has taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant information needed by the Group s and Association s auditor in connection with preparing their report and to establish that the Association s auditor is aware of that information. Review of Effectiveness of Internal Controls The Board is satisfied that effective systems of internal control have been operated in the period under review. In arriving at its opinion, the Board has conducted its annual review and placed reliance on several sources of evidence. The primary source of evidence is the reports from the internal audit service provided by TIAA. During /15, 65 days of internal audit time was committed to the management of the internal audit function by TIAA, with 50 days planned for /16, the plan for which was agreed by the Audit and Risk Committee in January. Annual General Meeting The annual general meeting will be held on 22 September External Auditors A resolution to appoint BDO LLP will be proposed at the forthcoming Annual General Meeting. The report of the Board was approved on 22 September and signed on its behalf by: Claire Ryan Company Secretary Date: 22 September 16

17 STATEMENT OF BOARD MEMBER RESPONSIBILITIES The Board members are responsible for preparing the report of the Board and the financial statements in accordance with applicable law and regulations. Co-operative and Community Benefit Societies law and social housing legislation require the Board members to prepare financial statements for each financial year for the Group and Association in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Association and of the surplus or deficit of the Group and Association for that period. In preparing these financial statements, the Board members are 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 and the Statement of Recommended Practice: Accounting by registered social housing providers (Update 2010) have been followed, subject to any material departures disclosed and explained in the financial statements; and Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Association will continue in business The Board is responsible for keeping adequate accounting records that are sufficient to show and explain the Association s transactions and disclose with reasonable accuracy at any time the financial position of the Association and enable them to ensure that the financial statements comply with the Cooperative and Community Benefit Societies Act, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing in England from April They are also responsible for safeguarding the assets of the Association and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board is responsible for ensuring that the report of the Board is prepared in accordance with the Statement of Recommended Practice: Accounting by registered social housing providers (Update 2010). Financial statements are published on the Group s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group s website is the responsibility of the Board members. The Board members' responsibility also extends to the ongoing integrity of the financial statements contained therein. 17

18 Group Highlights Five Year Summary For the year ended 31 March Group Income and Expenditure account (s) Restated 2011 Total turnover continuing activities 17,627 16,944 16,374 16,588 15,008 Income from lettings 16,365 15,555 14,990 14,084 13,258 Operating Surplus 4,576 4,333 4,863 4,120 3,469 Surplus / (Deficit) for the year 3,628 3,324 3,680 2,796 (103) Group Balance Sheet (s) Tangible fixed assets, net of depreciation 87,674 85,257 79,917 79,871 80,805 HG and other capital grants (32,380) (32,059) (30,717) (30,688) (30,641) Tangible fixed assets net of capital grants and depreciation 55,294 53,198 49,200 49,183 50,164 Net current assets / (liabilities) 6,071 6,095 6,689 2,894 (864) Loans (due over one year) 25,180 25,700 25,700 25,700 25,700 Revenue Reserves 32,369 29,458 25,623 22,450 19,976 Accommodation figures Total housing stock owned and managed at year end (number of dwellings): Social housing 3,666 3,626 3,608 3,619 3,630 18

19 Value For Money Assessment Executive summary SLH has developed a value for money (VFM) self-assessment for the year 1 April to 31 March jointly with the Board, the Executive Team and all colleagues. SLH is confident that it meets the expectations of the regulator the Homes & Communities Agency (HCA) and their VFM standard. SLH believe that the self-assessment details how it meets the standard and how it delivered the aims of the Corporate Plan. In /15 the SLH Group s turnover increased to 17.6m, from 16.9m with a surplus of 3.6m achieved. SLH outperformed its business plan and had a higher surplus per property than the sector average coupled with a lower debt per home ratio. The self-assessment tells the story of /15 by giving an assessment of performance against corporate aims, the cost of delivering services in the year, how SLH add value against each of its aims and what SLH plan to do from and beyond. This future look not only gives a flavour of future business aims but also the actions planned to improve the approach to VFM. The assessment supports both financial performance information and the annual report to customers. As SLH started to prepare the self-assessment, the environment in which it worked changed dramatically. The Summer Budget brought about some big changes for housing associations like SLH, most noticeably the 1% reduction in rent over the next four years. This has led to SLH reshaping plans for the future which were based on predicted rent increases and means that SLH do not have the full capacity to complete all its plans. SLH has taken some tough decisions but its focus is on maintaining essential services to customers. This self-assessment begins to detail how SLH have responded to the budget announcement, however a full response will not be detailed until October. Overall, SLH believe the assessment details that it has a strong approach to value for money but there are areas for improvement which it acknowledges and is taking action to address. The value for money self assessment can be downloaded in full from SLH s website or by following this link 19

20 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF SOUTH LIVERPOOL HOMES LIMITED We have audited the financial statements of South Liverpool Homes Limited for the year ended 31 March which comprise the consolidated and association income and expenditure accounts, the consolidated and association balance sheets, the consolidated statement of total recognised surpluses and deficits, the consolidated cash flow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the association s members, as a body, in accordance with 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 auditors As explained more fully in the statement of board member responsibilities, the board members are responsible for the preparation of the financial statements and for being satisfied that they 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 Financial Reporting Council s (FRC 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 FRC s website at Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the group s and parent association s affairs as at 31 March and of the group s and parent association s surplus for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Co-operative and Community Benefit Societies Act, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing

21 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF SOUTH LIVERPOOL HOMES LIMITED (CONTINUED) Matters on which we are required to report by exception We have nothing to report in respect of the following matters where we are required to report to you if, in our opinion: the information given in the Report of the Board for the financial year for which the financial statements are prepared is not consistent with the financial statements; adequate accounting records have not been kept by the parent association, or returns adequate for our audit have not been received from branches not visited by us; or a satisfactory system of control has not been maintained over transactions; or the parent association financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit. BDO LLP, statutory auditor Liverpool United Kingdom Date BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 21

22 Group Income and Expenditure Account for the year ended 31 March Note Turnover 3 17,627 16,944 Operating costs 3 (13,051) (12,611) Operating Surplus 5 4,576 4,333 Surplus on sale of fixed assets Interest receivable and other income Interest payable and similar charges 8 (1,373) (1,349) Other finance costs 10 (33) (48) Surplus on ordinary activities before taxation 3,670 3,303 Tax on surplus on ordinary activities Loss/(Profit) share to minority Interest (42) 21 Surplus for the financial year 23 3,628 3,324 All amounts relate to continuing operations. The notes on pages 28 to 61 form part of these financial statements. 22

23 Association Income and Expenditure Account for the year ended 31 March Note Turnover 3 17,540 16,807 Operating costs 3 (12,933) (12,495) Operating surplus 5 4,607 4,312 Gift Aid receipt from subsidiary Surplus on sale of fixed assets Interest receivable and other income Interest payable and similar charges 8 (1,373) (1,349) Other finance costs 10 (33) (48) Surplus on ordinary activities before taxation 3,744 3,421 Tax on surplus on ordinary activities Surplus for the financial year 23 3,744 3,421 All amounts relate to continuing operations. The notes on pages 28 to 61 form part of these financial statements. 23

24 Statements of Total Recognised Surpluses and Deficits For the year ended 31 March Note Group Association Surplus for the financial year 3,628 3,324 3,744 3,421 Actuarial gain/(loss) relating to pension scheme 10 (717) 511 (717) 511 Total recognised surpluses relating to the year 2,911 3,835 3,027 3,932 Net gain from fair value adjustment Total Surpluses since the last report 2,911 3,837 3,027 3,932 Reconciliations of movements in Group s and Association s funds For the year ended 31 March Note Group Association Opening total funds as at 1 April Total recognised surpluses relating to the year 23/24 29,500 25,663 29,453 25,521 2,911 3,837 3,027 3,932 Closing total funds 32,411 29,500 32,480 29,453 The notes on pages 28 to 61 form part of these financial statements. 24

25 Group Balance Sheet at 31 March Note Tangible fixed assets Housing Properties Depreciated Cost 12 87,081 84,800 Investment Properties 12a Housing Grant 12 (31,880) (31,559) Other Grant 12 (500) (500) 54,743 52,783 Other tangible fixed assets ,294 53,198 Current assets Property for resale ,046 Stock Debtors 17 1,262 1,673 Investment 18 4,600 4,600 Cash at bank and in hand 1,933 2,501 8,837 10,124 Creditors: amount falling due within one year 19 (2,766) (4,029) Net current assets 6,071 6,095 Total assets less current liabilities 61,365 59,293 Creditors: amount falling due after more than one year 20 26,377 27,848 Net Pension Liability 10 2,515 1,938 Capital and Reserves 28,892 29,786 Revenue Reserve 23 32,369 29,458 Revaluation Reserve Minority Interest Consolidated funds 61,365 59,293 The financial statements were approved and authorised for issue by the Board on 22 September and signed on its behalf by: Steve Jennings Robert Brown Claire Ryan Director Director Company Secretary The notes on pages 28 to 61 form part of these financial statements 25

26 Association Balance Sheet at 31 March Note Tangible fixed assets Housing Properties Depreciated Cost 12 87,019 84,593 Housing Grant 12 (31,880) (31,559) Other Grant 12 (500) (500) 54,639 52,534 Other tangible fixed assets ,179 52,949 Current assets Properties for resale ,046 Debtors 17 2,146 2,410 Investment 18 4,600 4,600 Cash at bank and in hand 1,729 2,378 9,352 10,434 Creditors: amount falling due within one year 19 (3,159) (4,144) Net current assets 6,193 6,290 Total assets less current liabilities 61,372 59,239 Creditors: amount falling due after more than one year 20 26,377 27,848 Net Pension Liability 10 2,515 1,938 28,892 29,786 Capital and Reserves Revenue Reserve 23 32,480 29,453 Association s Funds 61,372 59,239 The financial statements were approved and authorised for issue by the Board on 22 September and signed on its behalf by: Steve Jennings Robert Brown Claire Ryan Director Director Company Secretary The notes on pages 28 to 61 form part of these financial statements 26

27 Group Cashflow Statement for the year ended 31 March Note Net cash inflow from operating activities 28 6,423 6,295 Returns on investment and servicing of finance Interest received Interest paid (1,373) (1,349) Capital Expenditure (1,342) (1,295) Purchase and construction of housing properties (4,440) (5,215) Social housing grant received 793 1,521 Improvement programme expenditure (1,554) (1,812) Purchase of other fixed assets (397) (333) Sales of housing properties Sales of other fixed assets - - (5,129) (5,357) Management of Liquid Resources Cash in Money Market Deposits Financing Repayment in loan (520) - (Decrease) / Increase in Cash (568) 443 The notes on pages 28 to 61 form part of these financial statements. 27

28 Notes to the Financial Statements 1 Legal Status SLH is a charitable community benefit society registered with the Financial Conduct Authority and is registered with the Homes and Communities Agency (HCA) as a social landlord. 2 Accounting Policies Basis of accounting The financial statements of the Group and Association are prepared in accordance with applicable accounting standards and the Statement of Recommended Practice: accounting by Registered Social Housing Providers update 2010, and comply with the Accounting Direction for Private Registered Providers of Social Housing Basis of Consolidation The Group financial statements consolidate the financial statements of the Association and its subsidiaries at 31 March, using acquisition accounting. Turnover Turnover comprises rental income and service charges receivable in the year, other services included at the invoiced value of goods and services supplied in the year and revenue grants receivable in the year. Housing Property Sales Properties sold through tenants exercising their Preserved Right to Buy or Right to Acquire are included within the surplus or loss on sale of fixed assets. Proceeds from properties developed or acquired for outright sale are included within turnover. Taxation The charge for taxation is based on surpluses arising on certain activities, which are liable to tax. Deferred Taxation The payment of taxation is deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Except as noted below, full provision for deferred taxation is made under the incremental liability method on all timing differences that have arisen, but not reversed by the balance sheet date. In accordance with FRS 19, deferred tax is not provided on gains on the sale of nonmonetary assets, if the taxable gain will probably be rolled over. Deferred tax is measured at the tax rates that are expected to apply in the periods when the timing differences are expected to reverse, based on tax rates and law enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted. Value Added Tax The Group charged 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 that it is suffered by the Group and not recoverable from HM Revenue and Customs. The balance of VAT payable is included as a current liability. Interest Payable Interest payable is charged to the income and expenditure account in the year. Pensions The Group participates in two funded multiemployer defined benefit schemes, the Social Housing Pension Scheme (SHPS) and the Merseyside Pension Fund (MPF) and a number of defined contribution pension schemes. For the SHPS, it has not been possible to identify the share of underlying assets and liabilities belonging to individual participating employers. The income and expenditure charge represents the employer contribution payable to the scheme for the accounting period. For the MPF, the operating costs of providing retirement benefits to participating employees are recognised in the accounting periods in which the benefits are earned. The related finance costs, expected return on assets and any other changes in fair value of the assets and liabilities, are recognised in the accounting period in which they arise. The operating costs, finance costs and expected return on assets are recognised in the income and expenditure account with any other changes in fair value of assets and liabilities being recognised in the statement of total recognised surpluses and deficits. 28

29 Supported Housing Managed by Agencies Where the agency carries the financial risk, the income and expenditure account includes only that income and expenditure which relates solely to SLH. Other income and expenditure of projects in this category is excluded from SLH s income and expenditure account. Contract Costs Costs incurred in the new build developments which are directly attributable to the projects, are recognised as a fixed asset. Housing Properties Housing properties are principally properties available for rent and are stated at cost less depreciation. Cost includes the cost of acquiring land and buildings, development costs, interest charges incurred during the development period and expenditure incurred in respect of improvements. Improvements are works which result in an increase in the net rental income, such as a reduction in future maintenance costs, or result in a significant extension of the useful economic life of the property in the business. Only the direct overhead costs associated with new developments or improvements are capitalised. ERCF and Social Housing Grant ERCF Grant In 1999, the SLH stock transfer was funded by ERCF grant from the European Union and is utilised to reduce the capital costs of housing properties, including land costs. ERCF grant released on sale of a property may be repayable but is normally available to be recycled. It is debited to ERCF grant. Social Housing Grant Social Housing Grant (SHG) is receivable from the Homes and Community Agency and is utilised to part finance the capital costs of housing properties, including land costs. The amount of SHG receivable is calculated on a fixed basis depending on the size, location and type of housing property. SHG received in advance is included as a liability. SHG received in respect of revenue expenditure is credited to the income and expenditure account in the same period as the expenditure to which it relates. SHG is subordinated to the repayment of loans by agreement with the Homes and Community Agency (HCA). Housing Grant shown in the fixed asset note comprises of ERCF and SHG grant spent on capital improvements. SHG released on sale of a property may be repayable but is normally available to be recycled and is credited to a Recycled Capital Grant Fund or Disposal Proceeds Fund and included in the balance sheet in creditors. Other Grants These include grants from local authorities and other organisations. Grants in respect of revenue expenditure are credited to the income and expenditure account in the same period as the expenditure to which they relate. Depreciation of Housing Properties Freehold land is not depreciated. Depreciation of buildings is charged so as to write down the net book value of the components of the housing properties to their estimated residual value, on a straightline basis, over their estimated useful economic lives in the business. The depreciable amount is arrived at on the basis of original cost, less the proportion of HG and other grants less residual value. The Association s housing properties are depreciated at the following rates from 1999: Housing properties - houses Based on the useful economic life of the individual components. A range of 10 to 55 years. - flats Based on the useful economic life of the individual components. A range of 10 to 55 years. With the adoption of SORP 2010, improvement expenditure capitalised has to be depreciated based on the useful economic lives of the components capitalised. Building work has a useful economic life of 50 years. Replacements of: windows; communal doors, central heating systems and passenger lifts have a useful economic life of 30 years. Replacement of bathrooms and rewires have a useful economic life of 35 years. Replacement of 29

30 kitchens have a useful economic life of 20 years. Replacement of domestic boilers have a useful economic life of 15 years. Replacement of roofs have a useful economic life of 55 years. Investments/Liquid resources These are readily disposable current asset investments. Impairment Assets will be reviewed for impairment if there is an indication that impairment may have occurred. Where there is evidence of impairment, fixed assets are written down to the recoverable amount. Any such write down would be charged to operating surplus unless it was a reversal of a past revaluation surplus in which case it would be taken to the statement of total recognised surpluses and deficits. Other Tangible Fixed Assets These assets are stated at cost less accumulated depreciation. Depreciation is charged on a straight-line basis over the expected economic life of the asset to its expected residual value. The expected economic lives of assets are: Furniture, fixtures and fittings Computers and office equipment Commercial vehicles 3 years 3 years 5 years Leased Assets Assets held under finance leases are included in the balance sheet and depreciated in accordance with the Group s normal accounting policies. The present value of future rentals is shown as a liability. The interest element of rental obligations is charged to the income and expenditure account over the period of the lease in proportion to the balance of capital repayments outstanding. Rentals payable under operating leases are charged to the income and expenditure account on a straight line basis over the lease term. Properties for Resale Completed properties for outright sale and property under construction are valued at the lower of cost and net realisable value. Cost comprises materials, direct labour and direct development overheads net of housing subsidy. Net realisable value is based on estimated sales price after allowing for all further costs of completion and disposal. 30

31 3 Group, Turnover, Operating Costs and Operating surplus continuing activities Operating Operating Turnover surplus / costs (deficit) Social Housing Lettings 17,150 (12,507) 4,643 Other social housing activities Community Regeneration 84 (407) (323) Non social housing activities Commercial and market rented properties 17,234 (12,914) 4, (1) 14 Sale of Land 378 (176) 202 Supporting People Other ,627 (13,051) 4,576 Operating Operating Turnover surplus / costs (deficit) Social Housing Lettings 16,337 (12,043) 4,294 Other social housing activities Community Regeneration 45 (98) (53) Non social housing activities Commercial and market rented properties 16,382 (12,141) 4, (4) 10 Sale of Land 428 (200) 228 Supporting People 33 (33) - Other 87 (233) (146) 16,944 (12,611) 4,333 31

32 3 Association Turnover, Operating Costs and Operating surplus continuing activities (continued) Turnover Operating costs Operating surplus / (deficit) Social Housing Lettings 17,150 (12,507) 4,643 Other social housing activities Community Regeneration 12 (250) (238) 17,162 (12,757) 4,405 Non social housing activities Sale of Land 378 (176) 202 Supporting People ,540 (12,933) 4,607 Turnover Operating costs Operating surplus / (deficit) Social Housing Lettings 16,337 (12,043) 4,294 Other social housing activities Community Regeneration 9 (219) (210) 16,346 (12,262) 4,084 Non social housing activities Sale of Land 428 (200) 228 Supporting People 33 (33) - 16,807 (12,495) 4,312 32

33 3 Turnover, Operating Costs and Operating Result (continued) Particulars of Income and Expenditure from Social Housing Lettings Group and Association General Housing Supported Housing and Housing for older people Total Total Turnover from social housing lettings Rent receivable net of identifiable service charges 15, ,459 15,672 Voids (89) (4) (94) (117) Rent receivable net of identifiable service charges 15, ,365 15,555 Service charges receivable Charges For Support Services Other Revenue Grants Turnover from social housing lettings 16, ,150 16,337 Management (5,111) (173) (5,284) (4,798) Services (281) (292) (573) (397) Routine Maintenance (1,058) (37) (1,095) (1,167) Planned Maintenance (2,605) (36) (2,641) (2,931) Major Repairs (822) (1) (823) (890) Bad Debts (22) - (22) 3 Depreciation of housing properties (1,893) (176) (2,069) (1,863) Operating costs on social housing lettings Operating surplus / (deficit) on social housing lettings (11,792) (715) (12,507) (12,043) 4,788 (145) 4,643 4,294 Units 3, ,666 3,626 33

34 4 Accommodation in Management and Development At the end of the year accommodation in management for each class of accommodation was as follows: Group and Association Social housing No. No. Total General Housing owned 3,538 3,498 Supported Housing and housing for older people Total Accommodation managed on behalf of others 3 3 Total owned and managed 3,666 3,626 5 Operating Surplus This is arrived at after charging. Group Association Depreciation of other tangible fixed assets Depreciation of housing properties 2,069 1,861 2,069 1,861 Operating leases - Land and buildings Vehicles Fees payable to the Group s auditor for the audit of the annual financial statements Fees payable to the Group s auditor for other services relating to taxation Fees payable to the Group s auditor for other services

35 6 Surplus on Sale of Fixed Assets Group Association Housing properties Sale proceeds 1, , Less Attributable costs (541) (12) (541) (12) Surplus on disposal of housing properties Loss on disposal of components (173) (169) (173) (169) Total Assets Sale Proceeds 1, , Attributable Costs (541) (12) (541) (12) Loss on disposal of components (173) (169) (173) (169) Surplus on disposal Interest Receivable and Similar Income Group Association Interest receivable and similar income Interest Payable and Similar Charges Group Association Loans (1,341) (1,277) (1,341) (1,277) Interest Break Costs - - Funders fee undrawn (32) (72) (32) (72) (1,373) (1,349) (1,373) (1,349) 35

36 9 Board Members and Executive Directors Basic Salary Pension Total Total Chair of the Board Ian Perry John McHale (resigned 24 September 2013) Board Members Barbara Southern (resigned 25 March 14) Robert Brown Lawrence Dack Doreen Knight John Tague Chair of SLHR Trevor Smith Steve Jennings John Wiss Committee member Mary Rasmussen John Rippon Peter Bond Executive Directors Emoluments Aggregate emoluments Basic salary amounts incorporate benefits in kind and pension contributions. No other Board members received emoluments. The emoluments of the highest paid director, the Chief Executive, excluding pension contributions, were 134,100 ( 117,464). The Chief Executive is a member of the Social Housing Pension Scheme (SHPS). She is an ordinary member of the pension scheme and no enhanced or special terms apply. The Association does not make any further contribution to an individual pension arrangement for the Chief Executive. A payment was made for compensation for Loss of Office to one executive director during the year. The total of this payment including holiday pay was 79,888. This figure is included in the Executive Directors Emoluments above. 36

37 10 Employees Average Numbers: Group Association No. No. No. No. Average monthly number of employees expressed in full time equivalents : Administration Development and repairs Housing, support and care Regeneration Employee costs: Wages and salaries 4,798 4,476 2,988 2,618 Social security costs Other pension costs ,709 5,312 3,740 3,292 Full time equivalents are calculated based on a standard working week of hours. Salary bandings for all employees earning over 60,000: Group and Association 60,000 to 70, ,001 to 80, ,001 to 90, ,001 to 100, ,001 to 110, ,001 to 120, The Association employees are members of the Merseyside Pension Fund (MPF) or the Social Housing Pension Scheme (SHPS). Further information is given below. 37

38 The Merseyside Pension Fund (Group and Association) The Merseyside Pension Fund (MPF) is a multi-employer scheme. MPF is administered by the regulations governing Local Government Pension Schemes. MPF is a defined benefit scheme. Triennial actuarial valuations of the pension scheme are performed by an independent professionally qualified actuary using the project unit method. Contributions The defined benefit scheme employer s contributions for the Group and Association at 31 March were 212k (: 172k) and the employer s contribution rate was 21.8% of pensionable pay and an agreed annual cash lump sum of 158k. The contribution anticipated from 2016 is 218k. Assumptions The major assumptions used by the actuary in assessing scheme liabilities on a FRS 17 basis were: At 31 March % Per Annum At 31 March % Per Annum At 31 March 2013 % Per Annum Inflation assumption 2.0% 2.4% 2.4% Rate of increase in salaries 3.5% 3.9% 3.9% Rate of increase in pensions 2.0% 2.4% 2.4% Discount rate 3.3% 4.5% 4.2% The assets and liabilities in the scheme and the expected rates of return were: The fair value and expected return on assets in the MPF related to the Group and Association were: Market Value at 31 March Expected return at 31 March Market Value at 31 March Expected return at 31 March Market Value at 31 March 2013 Expected return at 31 March 2013 Equities 2, % 2, % 2, % Government Bonds % % % Other Bonds % % % Property % % % Cash/Liquidity % % % Other % % % Market value of assets 4,146 3,654 3,622 Present value of scheme liabilities 6,661 (5,592) (6,143) Net pension liability (2,515) (1,938) (2,521) 38

39 The expected rate of return on plan assets is 5.24% Amounts for the current and previous periods are as follows: Defined benefit schemes Defined benefit obligation (6,661) (5,592) (6,143) (5,198) (4,765) Scheme assets 4,146 3,654 3,622 3,127 2,954 (Deficit) (2,515) (1,938) (2,521) (2,071) (1,811) Experience adjustments on scheme liabilities Experience adjustments on scheme assets (278) (244) 231 (124) (125) The major categories of scheme assets as a percentage of total scheme assets are as follows: Equities 53.9% 62.0% Government bonds 14.8% 13.7% Other Bonds 2.6% 2.6% Property 10.8% 8.0% Cash / liquidity 3.0% 2.7% Other 14.9% 11.0% Analysis of the amount charged to the income and expenditure account: Current service cost (40) (52) Total Operating (Cost) (40) (52) 39

40 Analysis of return on scheme assets: Actual return on scheme assets Analysis of the amounts charged to other finance costs: Expected return on pension scheme assets Interest on pension scheme liabilities (248) (257) Net Cost (33) (48) Analysis of amount recognised in statement of total recognised surpluses and deficits (STRSD) Actual return less expected return on pension scheme assets (228) (244) Experience gains and losses on pension scheme liabilities - - Changes in assumptions underlying the present value of scheme liabilities Actuarial deficit recognised in STRSD

41 Movement in deficit during the year Group and Association share of scheme liabilities at beginning of year (1,938) (2,521) Movement in year: Current service cost (39) (52) Contributions Net interest loss (33) (48) Actuarial deficit (717) 511 Group and Association share of scheme liabilities at end of year (2,515) (1,938) Analysis of the amounts recognised in the balance sheet is as follows: Present Value of funded benefit obligations (6,661) (5,592) Fair value of plan assets 4,146 3,654 (Deficit) (2,515) (1,938) History of experience gains and (losses) Difference between expected and actual return on share of scheme assets: Amount () 228 (244) 231 (124) (125) Percentage of share of scheme assets 5.5% 6.7% 6.4% 4.0% 4.2% Experience gains and losses on share of scheme liabilities: Amount () 945 (755) 738 (198) 483 Percentage of the present value of share of scheme liabilities 14.2% 13.5% 12% 3.8% 10.1% Total amount recognised in STRSD Amount () 717 (511) (507) (322) 358 Percentage of the present value of share of scheme liabilities 10.8% 9.1% 8.3% 6.2% 7.5% 41

42 Changes in the present value of defined benefit obligations are as follows: Opening defined benefit obligation (5,592) (6,143) Current service cost (39) (52) Interest cost (248) (257) Actuarial gains / (losses) (945) 755 Benefits paid Member contributions (22) (17) Closing Defined Benefit Obligation (6,661) (5,592) Changes in the fair value of scheme assets are as follows: Opening fair value of scheme assets 3,654 3,622 Expected return Actuarial gains / (losses) 228 (244) Benefits paid (185) (122) Employer contributions Member contributions Closing Fair Value of Scheme Assets 4,146 3,654 The Social Housing Pension Scheme (Group and Association) Social Housing Pension Scheme South Liverpool Homes Limited participates in the Social Housing Pension Scheme (the Scheme). The Scheme is funded and contracted-out of the State Pension scheme. Social Housing Pension Scheme are 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. New staff employed by the Association in the year were eligible to participate in the scheme, either 1/120 th CARE or a Defined Contribution scheme. The Schemes are funded and contracted out of the state scheme. From the 1 April 2011 the defined benefit scheme was closed for new entrants. The Scheme operated a single benefit structure, final salary with a 1/60 th accrual rate, until 31 March From April 2007, there are three benefit structures available, namely: Final salary with 1/60th accrual rate Final salary with 1/70th accrual rate Career average revalued earnings (CARE) with a 1/60 th accrual rate 42

43 From April 2010 there are two further benefit structures available, namely: Final salary with a 1/80th accrual rate Career average revalued earnings (CARE) with a 1/80 th or 1/120 th accrual rate A defined contribution benefit structure was made available from 1 October An employer can elect to operate different benefit structures for their active members and their new entrants. An employer can only operate one open defined benefit structure at any one time. An open benefit structure is one which new entrants are able to join. South Liverpool Homes Limited has elected to operate the final salary with a 1/60th accrual rate benefit structure which was closed to new members in 31 March From April 2011, South Liverpool Homes Limited opened Career average revalued earnings (CARE) with a 1/120 th accrual rate and a defined contribution scheme. In /15, South Liverpool Homes Limited completed the auto-enrollment of eligible employees. The Trustee commissions an actuarial valuation of the Scheme every three years. The main purpose of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required, in respect of each benefit structure, so that the Scheme can meet its pension obligations as they fall due. From April 2007 the split of the total contribution rate between member and employer is set at individual employer level, subject to the employer paying no less than 50% of the total contribution rate. From 1 April 2010 the requirement for employers to pay at least 50% of the total contribution rate no longer applies. The actuarial valuation assesses whether the Scheme s assets at the valuation date are likely to be sufficient to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by reference to market levels. Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. During the accounting period, South Liverpool Homes paid contributions at a rate of 10.1% and a deficit contribution. Member contributions were 9.3% As at 31 March, there were 84 active members of the SHPS employed by the South Liverpool Homes Limited. The annual pensionable payroll in respect of these members was 1,689k. It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of underlying assets and liabilities belonging to individual participating employers. The Scheme is a multi-employer scheme, where the assets are co-mingled for investment purposes, and benefits are paid out of total Scheme assets. Accordingly, due to the nature of the Scheme, the accounting charge for the period under FRS17 represents the employer contribution payable. The last formal valuation of the Scheme was performed as at 30 September 2011 by a professionally qualified Actuary using the Projected Unit Method. The market value of the Scheme s assets at the valuation date was 2,062 million. The valuation revealed a shortfall of assets compared with the value of liabilities of 1,035 million, equivalent to a past service funding level of 67.0%. 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 market value of the Scheme s assets at the date of the Actuarial Report was 2,718 million. The Actuarial Report revealed a shortfall of assets compared with the value of liabilities of 1,151 million, equivalent to a past service funding level of 70%. 43

44 Financial assumptions The financial assumptions underlying the valuation as at 30 September 2011 were as follows: Valuation Discount Rates % pa Pre retirement 7.0 Non pensioner post retirement 4.2 Pensioner post retirement 4.2 Pensionable earnings growth 2.5 per annum for 3 years, then 4.4 Rate of price inflation 2.9 Rate of pension increases Pre 88 GMP 0.0 Post 88 GMP 2.0 Excess over GMP 2.4 Expenses for death in service insurance, administration and Pension Protection Fund (PPF) levy are included in the contribution rate. Valuation results The valuation was carried out using the following demographic assumptions. Mortality pre-retirement 41% SAPS S1 Male / Female All Pensioners (amounts), Year of Birth, CMI_2009 projections with long term improvement rates of 1.5% p.a. for Males and 1.25% p.a. for Females. Mortality post-retirement 97% SAPS S1 Male / Female All Pensioners (amounts), Year of Birth, CMI_2009 projections with long term improvement rates of 1.5% p.a. for Males and 1.25% p.a. for Females. The long term joint contribution rates required from April 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 1/60th accrual 19.4 Final Salary with 1/70th accrual Career average revalued earnings with a 1/60th accrual rate Final salary with a 1/80 th accrual rate Career average revalued earnings with a 1/80th accrual rate Career average revalued earnings (CARE) with a 1/120th accrual rate

45 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 1,035 million would be dealt with by the payment of deficit contributions as shown in the table below: From 1 April 2013 to 30 September 2020 From 1 October 2020 to 30 September 2023 From 1 April 2013 to 30 September 2026 A cash amount(*) equivalent to 7.5% of Members Earnings per annum (payable monthly and increasing by 4.7% per annum each 1 April) A cash amount(*) equivalent to 3.1% of Members Earnings per annum (payable monthly and increasing by 4.7% per annum each 1 April) 30,640,000 per annum (payable monthly and increasing by 3% per annum each 1 April; first increase on 1 April ) (*) The contributions of 7.5% will be expressed in nominal pound terms (for each Employer), increasing each year in line with the Earnings growth assumption used in the 30 September 2008 valuation (i.e. 4.7% per annum). The contributions of 3.1% will be calculated by proportioning the nominal pound payment at the time of the change. Earnings at 30 September 2008 (for each Employer) will be used as the reference point for calculating these contributions. The next formal valuation of the Scheme will begin later this year and will give an update on the financial position as at 30 September. The results of this valuation will be available in Spring Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). Employers that have closed the defined benefit section of the Scheme to new entrants are required to pay an additional employer contribution loading of 2.5% to reflect the higher costs of a closed arrangement. A small number of employers are required to contribute at a different rate to reflect the amortisation of a surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into SHPS. New employers that do not transfer any past service liabilities to the Scheme pay contributions at the ongoing future service contribution rate. This rate is reviewed at each valuation and new employers joining the Scheme between valuations up until 1 April 2010 do not contribute towards the deficit until two valuations have been completed after their date of joining. New employers joining the Scheme after 1 April 2010 will be liable for past service deficit contributions from the valuation following joining. Contribution rates are changed on the 1 April that falls 18 months after the valuation date. A copy of the Recovery Plan, setting out the level of deficit contributions payable and the period for which they will be payable, must be sent to The Pensions Regulator. The Regulator has the power under Part 3 of the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation assumptions and/or Recovery Plan are inappropriate. For example the Regulator could require that the Trustee strengthens the actuarial assumptions (which would increase the Scheme liabilities and hence impact on the Recovery Plan) or impose a schedule of contributions on the Scheme (which would effectively amend the terms of the Recovery Plan). As a result of pension scheme legislation there is a potential debt on the employer that could be levied by the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme or the Scheme winding up. The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on a buy-out basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Scheme. If the liabilities exceed assets the leaving 45

46 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. The Association has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Scheme as at 30 September. As of the date the Association s estimated employer debt was 7.03m. 46

47 11 Taxation on Ordinary Activities Current tax reconciliation Group and Association Group Surplus on ordinary activities before taxation 3,670 3,303 Theoretical tax at UK corporation tax rate 20% (:21%) Effects of: - expenses not deductible for tax purposes income not within the charge to corporation tax Unrelieved losses of nil (: Nil) are carried forward. These losses may be altered dependent on the availability of rollover relief 47

48 12 Tangible Fixed Assets Properties Group Social housing properties held for letting Social housing properties under construction Land & Buildings Total Cost At 1 April 98,535 2, ,087 Works to existing properties 1, ,626 Additions 189 3, ,894 Schemes Completed 5,395 (5,395) - - Disposals (1,349) - - (1,349) At 31 March 104, ,258 Depreciation and impairment At 1 April (16,287) - - (16,287) Charged in year (2,069) - - (2,069) Disposals At 31 March (18,177) - - (18,177) 86, ,081 Housing Grant At 1 April (31,038) (451) (70) (31,559) Additions (111) (385) (297) (793) Schemes Completed (836) Disposals At 31 March (31,513) - (367) (31,880) Other grants At 1 April (500) - - (500) Additions At 31 March (500) - - (500) Net book value At 31 March 54, ,701 At 31 March 50,710 1, ,741 48

49 12 Tangible fixed assets Properties (continued) Association Social housing properties held for letting Social housing properties under construction Land Total Cost At 1 April 98,549 2, ,879 Works to existing properties 1, ,651 Additions 189 3, ,015 Schemes Completed 5,395 (5,395) - - Disposals (1,349) - - (1,349) At 31 March 104, ,196 Depreciation and impairment At 1 April (16,286) - - (16,286) Charged in year (2,069) - - (2,069) Disposals At 31 March (18,177) - - (18,177) At 31 March 86, ,019 Housing Grant At 1 April (31,038) (451) (70) (31,559) Additions (111) (385) (297) (793) Schemes Completed (836) Disposals At 31 March (31,513) - (367) (31,880) Other grants At 1 April (500) - - (500) Additions At 31 March (500) - - (500) Net book value At 31 March 54, ,639 At 31 March 50,725 1, ,534 49

50 12 Tangible fixed assets Group and Association (continued) Expenditure on works to existing properties Group Association Amounts capitalised 1,626 1,680 1,651 1,680 Amounts charged to income and expenditure account Total 2,449 2,570 2,474 2,570 Housing grant Group Association Total accumulated HG receivable at 31 March was: Capital grants 32,380 32,059 32,380 32,059 32,380 32,059 32,380 32,059 Housing properties book value, net of depreciation and grants, and offices net book value (note 12) comprises: Group Association Freehold land and buildings 54,701 52,741 54,639 52,534 54,701 52,741 54,639 52,534 12a Investment Properties Group Association Investment Properties

51 13 Tangible Fixed Assets Other Group Plant & Equipment Fixtures & Fittings Computer & office equipment Total Cost At 1 April ,714 2,165 Additions Disposals (25) (81) (446) (552) At 31 March ,431 2,009 Depreciation At 1 April (101) (217) (1,432) (1,750) Charged in year (13) (43) (203) (259) Disposals At 31 March (89) (179) (1,190) (1,458) Net book value At 31 March At 31 March

52 13 Tangible Fixed Assets Other Cost Association Plant & Equipment Fixtures & Fittings Computer & office equipment Total At 1 April ,714 2,165 Additions Disposals (25) (81) (446) (552) At 31 March ,431 1,995 Depreciation At 1 April (101) (217) (1,432) (1,750) Charged in year (10) (43) (203) (256) Disposals At 31 March (86) (179) (1,190) (1,455) Net book value At 31 March At 31 March Investments in Subsidiaries As required by statute, the financial statements consolidate the results of SLH Regeneration Limited, SLH Projects Limited and SLH Home Service LLP which were subsidiaries of South Liverpool Homes Limited at the end of the year and are companies incorporated in England and Wales. SLH Projects Limited is subsidiary of South Liverpool Homes Limited and was dormant during the current financial year. SLH Regeneration Limited completed fencing works for South Liverpool Homes during the current year. SLH Home Service LLP is a repairs and maintenance business which is 55% owned by SLH Regeneration Limited and 45% owned by Penny Lane builders Limited. SLH Home Service LLP performs repairs for South Liverpool Homes Limited and third party customers. South Liverpool Homes Limited has the right to appoint members to the Board of the subsidiaries and thereby exercises control over them. The subsidiaries are not registered social landlords and South Liverpool Homes Limited is the ultimate parent undertaking. 52

53 15 Properties for Resale Group Association 16 Stock Stock acquired (note 32) 877 1, ,046 Group Association 17 Debtors Stock held by subsidiaries Group Association Rent receivable 1,025 1,102 1,025 1,102 Less: Provision for bad and doubtful debts (465) (569) (465) (569) (560) Due from subsidiary undertaking Other debtors Prepayments and accrued income ,262 1,673 2,146 2, Current asset investments Group Association Money Market Deposits 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600 53

54 19 Creditors: Amounts Falling Due Within One Year Group Association Trade creditors Rent received in advance Other taxation and social security Accruals and deferred income 1,606 2,846 1,491 2,717 Other Creditors Due to subsidiary undertaking Payments to creditors 2,766 4,029 3,159 4,144 The Group s policy is to pay purchase invoices within 28 days of receipt, or earlier if alternative payment terms have been agreed. 20 Creditors: Amounts Falling Due After More Than One Year Group Association Debt (note 22) 25,180 25,700 25,180 25,700 Development loan (note 32) 918 1, ,813 Disposal Proceeds Fund (note 21) ,377 27,848 26,377 27,848 54

55 21 Disposal Proceeds Fund Group Association '000 '000 '000 '000 At 1 April Net sale proceeds recycled Acquisition of dwellings for letting (396) - (396) - At 31 March Debt Analysis Group Association Bank loans 25,180 25,700 25,180 25,700 Debt is repayable as follows: Group Association Within one year 1, , Between one and two years 38 1, ,800 Between two and five years 12,133 7,326 12,133 7,326 After five years 11,209 16,054 11,209 16,054 25,180 25,700 25,180 25,700 Housing Loans from Financial Institutions are secured by specific charges on the Association s housing properties. The Association had a loan facility of 31.5m and at 31st March 25.2m of this facility was drawn down. The final repayment date of the facility A loans is October Over 87% of the loans are fixed at interest rates of 3.22% to 5.72% plus margin. The fixed rates have end dates from to The variable loan is at 3 month LIBOR plus margin. 55

56 23 Revenue Reserves Group Association 000 At 1 April 29,458 29,453 Surplus for the financial year 3,628 3,744 Actuarial gain relating to pension scheme (717) (717) At 31 March 32,369 32, Revaluation Reserve Group Association 000 At 1 April 42 - Movement in the year - - At 31 March Minority Interest A minority interest of almost 42k arises out of a surplus of 83k in SLH Home Service LLP. The other member of the partnership, Penny Lane Builders Limited, is entitled to a 50% share of the net surplus. The minority interest share of net assets is 62k (: 7k). 56

57 26 Financial Commitments Capital Expenditure commitments were as follows: Group Association '000 '000 '000 '000 Capital Expenditure Expenditure contracted for but not provided in the accounts 1,116 3,565 1,116 3,565 Expenditure authorised by the Board, but not contracted 6,241 3,615 6,241 3,615 7,357 7,180 7,357 7,180 The above commitments will be financed from cash balances 6,329k and grant receipts of 1,755k. Operating leases The payments which the Group are committed to make in future years under operating leases are as follows: Buildings Other Leases,000,000 Operating leases expiring: Within one year - - Two to five years More than five years Contingent Liabilities There were no contingent liabilities at 31 March (: nil). 57

58 28 Reconciliation of Operating Surplus to Net Cash Inflow from Operating Activities Operating surplus 4,576 4,333 Depreciation of tangible fixed assets 2,328 2,093 Pensions Operating Charge Pension Contributions Paid (212) (172) Working capital movements 6,731 6,306 Decrease in stock for resale (Increase) / Decrease in debtors 138 (599) (Increase) / Decrease in stock 426 (135) Increase / (Decrease) in creditors (1,041) 532 Net cash inflow from operating activities 6,423 6, Reconciliation of Net Cash flow to Movements in Net Debt (Decrease) / Increase in cash (568) 443 Cash inflow from (increase) in debt - - Change in net debt resulting from cash flows (568) 443 Change in net debt Net debt at 1 April (23,199) (23,642) Net debt at 31 March (23,767) (23,199) 58

59 30 Analysis of Net Debt 1 April Cash flow 31 March Cash at bank and in hand 2,501 (568) 1,933 Changes in cash 2,501 (568) 1,933 Changes in debt / loans (25,700) 520 (25,180) Changes in net debt (23,199) (48) (23,247) 31 Related Parties During the year the Group had two Board members who are tenants. It is the Company s policy that Board members who are tenants hold their tenancies and tenancy agreements on normal Association terms and they are not able to use their position to their advantage. Mary Rasmussen and Doreen Knight are elected members of Liverpool City Council. All transactions with the council are on normal commercial terms and the councillors are not able to use their position advantageously. Robert Brown is an employee of Manchester City Council. Included within other debtors at the 31 March there was a balance of 936k ( 888k) owed by SLH Regeneration Limited, a company which South Liverpool Homes Limited exercises control over. South Liverpool Homes Limited made purchases totalling 747k ( 707k) from SLH Regeneration Limited in relation to work carried out on the fencing programme and the shed demolition programme. South Liverpool Homes Limited purchased land which was held at a net book value of nil for 122k ( 195k) from SLH Regeneration Limited. South Liverpool Homes Limited charged a management fee of 169k ( 40k) to SLH Regeneration Limited. SLH Regeneration paid interest to SLH of 22k, ( 15k). SLH Home Service LLP commenced trading in April SLH Regeneration Limited owns a 55% share and exercises control over the LLP. During the year South Liverpool Homes Limited made purchases totalling 4.4m from South Liverpool Homes Service LLP for day to day and improvement repairs; of this South Liverpool Homes capitalised 1,030k ( 753k) worth of improvements works. SLH made recharges to SLHHS of 33k ( 52k). At the year end included in creditors in SLH there is an intercompany debt of 827k due to SLH Home Service LLP. Included in Stock of SLH Home Service LLP is an amount of 26k of work in progress. This amount is included in accruals in Current Liabilities in South Liverpool Homes. PLB has 45% ownership of SLH Home Service LLP. 32 Garston Under the Bridge Regeneration Project A number of parties, namely South Liverpool Homes Limited ( SLH ), Liverpool City Council ( LCC ), Liverpool Housing Trust ( LHT ) and Lovell Partnerships Limited ( Lovell ) have entered into a development project to regenerate an area of Liverpool known as Garston Under the Bridge ( GUTB ). SLH has acquired, and will continue to acquire, land with vacant possession to enable the assembly of redevelopment sites in line with the strategy for the area s regeneration agreed by SLH Board. Finance has been provided by LCC to cover the full cost of these acquisitions and other ancillary costs. As the development partner for the project, Lovell will build new social housing in the area and purchase some of the land from SLH to build properties for resale. To facilitate the above arrangements SLH and LCC have entered into an agreement setting out the terms and conditions for development of the area and repayment to LCC of a proportion of the financing relating to the land acquisitions. Subsequently SLH, LHT, LCC and Lovell have entered into a 59

60 development and sale agreement, which includes the amounts payable to SLH in relation to the sale of the acquired land to Lovell. The impact of these two agreements is that SLH has an obligation to LCC to repay a proportion of the financing relating to the land acquisitions and also has an asset as it has legal title to the land and an agreement that Lovell will purchase the land on completion of the properties. The amount payable to LCC for the land acquisitions is determined by the payments made by Lovell to SLH to purchase the land. In the opinion of the Board, the transactions relating to the land acquisitions create separate assets and liabilities in accordance with FRS 5. At the balance sheet date the following transactions relating to the project had been undertaken by SLH and recorded in the financial statements as follows: In the 12 years to 31 March SLH has incurred costs totalling 7.7m and have received funding from LCC of 7.7m; Of the 7.7m costs incurred to date, 5.7m relates to the purchase of properties that have or will be demolished to deliver the site assembly. The carrying value of these costs has been assessed and has been written down cumulatively by 2.8m to 2.1m stock and 0.8m fixed assets Lovell has sold 112 properties to date and 2.8m income has been recognised cumulatively ( 2.4m) for the land value and 1.3m ( 1.1m) of costs has been written off stock for resale; and the closing balance of 0.9m is disclosed in note 15; the surplus in the year is 202k ( 228k) The cumulative balance of 2m relates to ancillary costs related to the acquisition of the properties such as demolition and relocation costs In July 2006, the Development and Sale Agreement and SLH to LCC Agreement were signed. As part of the latter agreement all land owned by LCC on the site relating to the SLH and Lovell part of the site were transferred to SLH. These transfers are included within fixed assets and stock for resale dependent upon the ultimate retention or disposal respectively. SLH land relating to the LHT part of the site was transferred to LCC The funding is partly a loan ( 3.0m) and partly a subsidy to cover costs incurred to date ( 4.7m) The loan of 3.0m is repayable to LCC upon the phased completion of the project. 1.2m of the loan was repaid to LCC in March m of the loan was repaid to LCC in March.The remaining balance of 0.9m is disclosed as Development Loan in note 20 The Development and Sale Agreement provides for overages receipts to SLH based on the future sales value of the completed properties. A proportion of the overage receipts are repayable to LCC. This is in addition to the development loan as detailed above. Based on a view of future house prices, it is not expected to realise a receipt of overage and repayment to LCC. Whilst this is contractual, it is dependent upon the sale of the properties and the market valuation at completion. Due to the uncertainty of future market conditions no asset or liability has been recognised in relation to this contractual obligation. 33 Subsequent Events In June, the loans with Co-operative and Nationwide Building Society were repaid with new loans from a 30m facility with Yorkshire Building Society. In August, SLH secured a 15m 30 year fixed rate loan with M&G Investments and repaid 15m to Yorkshire Building Society. In the Government s budget statement of 8 July, the Government stated its intention to mandate: a reduction in social housing rents (including affordable rents and social rents) by 1% each year for the next four years, from April 2016; and tenants living in social housing and earning more than 30,000pa ( 40,000pa in London) will be required to pay market rent. This event occurred after the balance sheet date and does not provide additional information about, nor represent a change in, conditions that existed at that date. Therefore, in accordance with Financial Reporting Standard 21 Events after the balance sheet date, the Government s budget statement is a 60

61 non-adjusting post balance sheet event. The financial statements do not reflect the possible financial consequences of the matters described below. Properties Carried At Cost - As per accounting policy, the Association carries its social housing properties at cost net of Social Housing Grant, depreciation and impairment. Where we determine that government intentions represent an indicator of impairment according to the underlying accounting framework (whether of specific classes of housing property or across the portfolio) we will be required to perform a review for impairment on assets or appropriate cash generating units affected in the financial year to 31 March We will record an impairment charge in the financial statements to 31 March 2016 where we identify assets or cash generating units subject to impairment review that are carried at an amount greater than their recoverable amount. Based on the information currently available, it is not anticipated that there will be an impairment charge in the year to March Development plans: The current capital commitments presented within note 26 (both authorised and contracted and authorised but not yet contracted) have been determined on the basis of a predictable sustainable increase in rents for the foreseeable future. Government s intentions will require the Board to reconsider the plans and may result in the Association scaling back certain developments so as to operate within revised rental income forecasts. This work is not complete as at the date of signing these financial statements. Going concern: The Association s financial statements have been prepared on a going concern basis which assumes an ability to continue operating for the foreseeable future. Government s announced intentions have led to a reassessment of the Association s 30-year plan and other budget/forecast data as well as an assessment of imminent or likely breach in borrowing covenants. No significant concerns have been noted. We consider it appropriate to continue to prepare the financial statements on a going concern basis. 61

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