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THIRTEEN GROUP VALUE FOR MONEY SELF-ASSESSMENT 2015 Contents 1. Executive Summary...3 2. Thirteen Housing Group...5 3. Principal Activities and Geographical Focus...6 4. Business Environment, Risks and Priorities...8 5. Our Approach to Value for Money (VFM)... 10 Priorities from the 2014 VFM Self-Assessments... 13 6. VFM Outcomes and Achievements... 16 Return on assets... 16 Financial and operational performance... 26 Value for Money savings... 36 Summary of savings in 2014/15... 39 7. 2015/16 Business Plan and Targets... 40 8. Summary... 43 9. Further Information... 44 2
1. Executive Summary This document provides details of Thirteen Housing Group s Value for Money (VFM) selfassessment for the year ending 31 March 2015, highlighting the efficiencies realised across the Group over the year, and detailing: The achievements and performance of Erimus Housing, Housing Hartlepool, Tees Valley Housing and Tristar Homes; How we compare to our peers; and The strategies developed to support a robust and effective decision-making framework within the organisation. The self-assessment also sets out how the Group plans to target, measure and report continuous improvement in the future. Last year the Group produced three separate VFM self-assessments: a Fabrick Group selfassessment which incorporated Erimus Housing and Tees Valley Housing; and individual selfassessments for Housing Hartlepool and Tristar Homes, due to the Vela Parent Company not being registered with the Homes and Communities Agency (HCA). A Group-wide self-assessment has been developed for 2015, recognising that strategies and services are now implemented and delivered consistently across the Group, with a view to improving performance and services whilst ensuring efficiency savings are maximised. Details of each individual Landlord Company s return on assets and financial and operational performance are included. A robust VFM strategic framework has been developed this year, to achieve increased financial, social and environmental value and ensure that we meet regulatory and statutory requirements, including the HCA s Value for Money Standard: Registered providers shall articulate and deliver a comprehensive and strategic approach to achieving value for money in meeting their organisation s objectives. Their boards must maintain a robust assessment of the performance of all their assets and resources (including for example financial, social and environmental returns). This will take into account the interests of and commitments to stakeholders, and be available to them in a way that is transparent and accessible. This means managing their resources economically, efficiently and effectively to provide quality services and homes, and planning for and delivering on-going improvements in value for money. The document provides assurance that the Companies within the Thirteen Group understand this requirement and the specific expectations detailed in the standard, and clearly sets out where, and how, the standard is being met. The decision making process that supports the Group s strategic objectives is set out in the Our Approach to Value for Money section, which specifically provides details on the Asset Management Strategy and Business Planning and Governance frameworks, which culminate in the Group s Boards being presented with accurate and timely data to help inform appropriate and effective decision making. 3
The Group is committed to not only achieving VFM, but also ensuring that our assets generate a return in terms of their financial, social and environmental impact. This includes generating a surplus that can be reinvested to support future objectives. Further details are included in the Return on Assets section. The Group s approach to performance management and scrutiny is detailed in the Financial and Operational Performance section, which highlights our financial performance benchmarked with the HCA Global Accounts and operational performance compared with Housemark s National Benchmarking Club. Our financial performance compares well nationally although operational performance is, in some cases, median or lower quartile. Detailed analysis and associated actions are included in this section. A number of strategic and VFM targets were set in last year s self-assessments and progress against these is provided in the Priorities from the 2014 VFM Self-Assessments and Value for Money Savings sections. A key objective from last year s VFM self-assessments was to establish and populate an effective organisational structure for Thirteen: following a comprehensive and extensive recruitment programme, a streamlined Thirteen structure is now in place, providing the opportunity to improve efficiency and performance. VFM achievements for 2014/15 include: A saving of 3.3m on the Group s staffing costs as result of the merger. Delivering a reduction in pay costs of 780k following a review of the Lettings, Estate and Customer Involvement services. Innovative ways of working have been developed to help realise the efficiency savings, including: Group sign ups; key safes and Mobysoft Rent Sense and text messages. Exploring alternative solutions to the provision of adaptations, providing savings of 241k. Implementing a number of initiatives to mitigate the impact of welfare reforms, including: the re-designation of low demand high rise accommodation to meet the higher demand for smaller properties, resulting in a saving of 117k on void turnover and a 5% reduction in the number of high rise tenants owing more than 50. Economies of scale providing us with the opportunity to consolidate fuel card provision across the Group, creating savings of at least 9k per year. The Legal Services team now delivering a significant proportion of the Group s day to day and operational activity in-house, generating a saving of 1.3m. The opportunity for all Partners to benefit from Group-wide procurement savings of 1.8m. Generating 354k in social value through a number of initiatives helping customers into training, work experience and employment. Employability advisers achieving 384 outcomes for customers: 97 into employment; 244 into training and 43 into work experience. The efficiency savings of 7.5m equate to 5.2% of the Group s turnover. The 2015 budget announcement to reduce social rent by 1% per year for 4 years has led us to review our Business Plans in order to accommodate the reduced income. Our recent performance in reviewing service delivery, enabling us to make savings and achieve value for money, means that we are well placed to respond to the challenge and demands of the reduction. 4
2. Thirteen Housing Group Thirteen Housing Group Limited ( Thirteen ) is a non-asset owning, non-charitable parent which is a company limited by guarantee and Registered Provider within the Homes and Communities Agency (HCA) regulatory context. The Thirteen Group ( the Group ) is comprised of the parent and five subsidiaries: Erimus Housing Ltd a Company Limited by Guarantee, a charity registered with the Charity Commission and also a Registered Provider with the HCA o Erimus Housing Limited has a subsidiary Optimus Homes - which is registered at Companies House Housing Hartlepool - a company limited by guarantee, charity registered with the Charity Commission and Registered Provider with the HCA. Tees Valley Housing Limited a Registered Society under the Co-operative and Community Benefit Societies Act 2014, operating under charitable rules and also a Registered Provider with the HCA. o Tees Valley Housing Limited has two subsidiaries Portico Homes Limited and Partnering Plus Limited - both of which are private limited companies. Tristar Homes Limited - a company limited by guarantee, charity registered with the Charity Commission and Registered Provider with the HCA. Thirteen Care and Support Limited (previously Norcare) a company limited by guarantee and charity registered with the Charity Commission. Thirteen s Governance Structure Thirteen Erimus Housing Housing Hartlepool Thirteen Care and Support Tees Valley Housing Tristar Homes Audit and Risk Committee Optimus Homes Partnering Plus Remuneration Committee Portico Homes Treasury and Investment Committee 5
3. Principal Activities and Geographical Focus Thirteen was formed in April 2014 from the coming together of two existing housing groups, Fabrick and Vela, both of which operated in a defined geographical location, primarily the Tees Valley area but extending across North Yorkshire and the North East of England. As landlord and service provider, Thirteen directly reaches out to more than 70,000 people. It had a first year turnover of over 150 million and an asset base approaching 1 billion. As well as owning and managing over 33,000 properties in total, Thirteen is a major developer of new affordable housing, with its subsidiary Tees Valley Housing Limited being the lead partner in the Spirit development consortia and operating under a framework delivery agreement with the HCA. During the financial year, Thirteen s primary activities included: Management and development of: o general needs social and affordable housing for rent o supported housing and extra-care properties and related services o low-cost home ownership o leasehold and privately owned property Provision of related services such as financial inclusion and social enterprise activities Regeneration of neighbourhoods and communities The profile of stock owned and managed at 31 March 2015 by Local Authority and Registered Provider was as follows: 31/03/2015 Local Authority Erimus Housing Housing Hartlepool Tees Valley Tristar Homes Housing Babergh - - 1 - Craven - - - - Darlington - 7 339 36 County Durham - 158 190 17 Gateshead - 42 114 28 Hambleton - - 100 - Hartlepool - 7,018 379 - Middlesbrough 11,422 15 159 82 Newcastle - - 51 - North Tyneside - - 12 - Redcar & Cleveland - - 813 20 Richmondshire - - 52 - Scarborough - - 65 - Stockton on Tees - 145 1,444 9,922 Sunderland - 16 162 19 York - - 325 - Total 11,422 7,401 4,208 10,124 Total Group Stock 33,155 Source: NROSH+ data this includes leased stock 6
Thirteen s collective values The Thirteen Group has agreed clear values that reflect the ambitions and culture of the Thirteen Group and Partner Boards, as follows: Passionate about our social purpose Flexible and open minded Professional and accountable Supporting entrepreneurship and solutions that deliver Showing respect and optimism Credible and ethical These values help the Company demonstrate how it cares about the people and communities it serves and the partnerships it develops. They illustrate the kinds of partners it wants to work with: those which share its values, passion and commitment to help bring to life the business it is striving to create. 7
4. Business environment, risks and priorities In common with all housing providers, Thirteen faces immense challenges within the current and immediate social and economic climate. The economy remains located within a period of protracted slow growth and public expenditure is likely to remain highly restricted. The Thirteen and Partner Boards remain very much aware of the many key challenges, including: The change in Government and proposed new policy development, specifically relating to Right to Buy/Acquire. The impact of the recent budget announcement to reduce social housing rents by 1% per year for four years. Continuing uncertainty within the economic and housing market despite some modest improvement in the availability of mortgage finance. Continuing pressure on the financial position and status of many of our customers and local communities, with greatly reduced prospects, particularly for those aged 16 to 24. More directly, pressures resulting from the impact of welfare reforms - most notably the bedroom tax, reduced benefit cap and universal credit - hardening the operating environment for social housing providers, and creating greater uncertainty for individuals, communities and social housing businesses. Signs of increased confidence in the housing market with sales increasing. Social and demographic changes that continue to present specific needs gaps for those who are very elderly, in poor health or disabled and for others who, collectively, remain the most vulnerable members of our communities. The challenge of meeting the regulatory requirements of the HCA, most specifically the revised Viability Standard requiring a comprehensive Assets and Liabilities Register. This context also provides the challenge within which the Thirteen Group will flourish, drawing upon the capacity and capability the new Group has created. Strategic Risks The Thirteen Board and Partner Boards have reviewed and agreed the key strategic risks linked to the Group s strategic objectives as being: Significant service delivery quality or failure The volatility of our operating environment, and uncertainty of the political landscape, impacts on activity Failure to maximise use of assets to achieve Group objectives Failure to deliver efficiencies specified in business case for merger Failure to identify, understand and react to changes in market and impact of diversifying into non-core business activity Failure of, or too many, complex projects and/or opportunities, including partnership working issues Regulatory failure due to poor governance / assurance Failure to merge and integrate Group effectively / demonstrate effective leadership 8
Failure to secure funding and revenue - to deliver core business plus other opportunities FRS102 and the impact that will have on decision making Strategic Priorities In the face of such challenges the Thirteen and Partner Boards continue to focus on the following strategic priorities which inform and frame the focus of the Group s work and activities: Building a Great Organisation - Delivering profit for social purpose; - Delivering great services; - Generating social capital; - Doing business in an ethical way; - Investing, learning and innovating; - Being well led and accountable. Promoting Resilience and Sustainability In our: - Business; - Assets; - Customers and clients; - Neighbourhoods and communities. Committed to Growth and Adding Value - Developing aspirational homes and community facilities; - Ensuring existing partnerships deliver; - Forging new partnerships and making connections. During our first year of operation, the focus was very much on the integration of staff and services. In our second year of operation as Thirteen, the Group Board and Partner Boards, together with the Executive and wider management team, have collectively aligned themselves behind the immediate aim for 2015/16 of "Laying Firm Foundations". This strategic statement of intent re-emphasises the short to medium term objectives of prioritising those activities that are core to our business and central to underpinning our future growth, and enabling Thirteen to become the organisation it aspires to be. More specifically, the key priorities are: Letting, managing and maintaining good quality homes; Maximising rental and other income; Completing a rationalisation of office locations; Preparing for and implementing an integrated property and customer services system; Keeping us legal and safe; and Continuing our work developing people and teams. 9
5. Our Approach to Value for Money (VFM) Value for money (VFM) is fundamental to all partners within the Thirteen Group. The creation of the Group epitomised our commitment to achieving VFM, optimising future returns on assets, delivering quality services and having a positive impact on our customers and communities. The Group is committed to ensuring VFM in the delivery and procurement of excellent goods and services, whilst also providing social value to support our customers and neighbourhoods. In developing a VFM strategic framework, we have reviewed and built on established good practice to achieve increased financial, social and environmental value and achieve organisational objectives and legislative requirements for VFM. The VFM framework, which is equally applicable to all Companies within the Group, aims to consolidate our approach to VFM, ensuring it is embedded throughout the Group and an integral part of all policy development, project initiation and evaluation and recommendations to Board. It supports and consolidates a number of corporate strategies, including: Financial Strategy Governance Framework Business Planning Framework Performance Management Framework Customer Involvement Strategy Asset Management Strategy Procurement Strategy Transformational Framework (incorporating ICT, People and Accommodation Strategies) Corporate Social Responsibility Strategy (pending approval) Decision Making One of the early priorities for the Thirteen Group was to establish an effective governance framework that ensured the accountability of the Group and Partner organisations and facilitated an environment that encouraged scrutiny and challenge prior to the approval of key business decisions. During our first year of operation the governance framework has been further enhanced to meet the high standards expected of the Group as well as the requirements of the revised HCA regulatory framework and our adopted Code of Governance (NHF 2015 Edition), to enable us to be vigilant and resilient in the face of increasing economic and policy challenges. Thirteen s Boards The Thirteen Board, which oversees the business and strategic direction of the Group, has the legal responsibility to lead and direct the affairs of the Group within a framework of sound governance, continuous improvement, VFM and effective control, enabling risks to be properly assessed and managed. The Partner Boards are responsible for ensuring their business is carried out in accordance with their constitution, the intragroup agreement and agreed business plans. They are able to influence strategies and policies to reflect their priorities, and ensure accountability with regard to landlord services and local communities. They scrutinise and challenge financial plans and 10
operational performance, ensuring that services provided to customers are effective, appropriate and deliver VFM. The work of the Boards is supported by three Group Committees Remuneration, Audit & Risk and Treasury & Investment - which act on behalf of all Boards within the Group and consider and influence relevant aspects of VFM. Customer Involvement The Thirteen Customer Council, which holds the Group to account on delivering VFM services, is involved in the development and review of VFM processes and the Group s annual selfassessment. The new Thirteen Customer Scrutiny Panel, made up of customers from all four Landlords, carried out its first piece of scrutiny work Promoting a positive product to our customers - over a five month period between January and May 2015. The report, which was presented to all Partner Boards in September 2015, made recommendations for how Thirteen Group could improve its marketability and, thereby, attract more customers as a provider of choice, given changing market conditions and increased competition from the private rented sector (PRS) over recent years. An action plan has been developed to address the recommendations made by the Panel. This will be monitored by the Panel and reported to the Group s Audit and Risk Committee by exception. Business Planning The business planning process evolves through a series of Board development days, reflecting on current business priorities, changes in the external and internal environment, exploring new business needs and priorities and identifying key delivery projects. These are brought together to provide a draft business plan, which is then further scrutinised by the Board and subjected to detailed stress testing and scenario planning to consider how the organisation can react to unforeseen events, exploring financial and physical resource responses. Within the Group structure the proposed business plan is further subjected to scrutiny by the Treasury and Investment Committee, considering here the overall impact of Partner business plans and financial capacity in preparation for review and adoption by the Group Board. During 2014 the Group Board (including Partner Chairs) and Leadership Team collectively undertook further scenario testing via a HQN led Iron Grip risk modelling event. The developing Financial Strategy, linking to the Treasury Strategy, sets out our approach to getting the most out of our financial resources and achieving sustainability: assessing the Group s financial needs and the sources of funding required in order to meet the objectives of the business plan, whilst also planning for continued growth to enable stability in the face of both national and regional socio-economic factors impacting on the organisation. We are currently developing our Funding Plan to unlock the capacity of our property assets in providing security for future funding at competitive rates of interest. We have commenced the securitisation project, whereby the properties are prepared to be placed in security with our potential funders, which is largely a legal and administrative process. Asset Management The Group s Asset Management Strategy (2015 to 2019) covers the homes owned by the stock holding companies of Erimus Housing, Housing Hartlepool, Tees Valley Housing and Tristar Homes. It responds to a number of unprecedented threats to our core business and the overall sustainability of our homes and neighbourhoods. The Group structure also includes a Care and Support arm which provides specialist services for older people and clients with extreme needs. 11
This continues to be a significant growth area and one which presents a number of challenges which must be taken into account when managing existing and future stock assets. Through the Health and Housing initiative, Thirteen Care and Support was awarded 180k last year from Public Health England to develop three community health hubs, five shared houses and a peer mentor and volunteer hub, for people in drug and alcohol recovery in Middlesbrough. By upgrading three of our under-utilised housing community facilities, in Hemlington, Thorntree and Belle Vue, we have created space for community groups and health and voluntary organisations to run activities, sessions and events. The shared houses are to be occupied by people who are in active recovery: these houses are located close to the community health hubs which are open to all. In total there are 10 peer mentors and about 40 volunteers who have access to the peer mentor hub, which provides office space and a training facility. The Asset Management Strategy has been purposely developed to take into account the individualities of each Landlord Company and the different stages of stock investment. Historically, asset management strategies concentrated on covering a plethora of bricks and mortar issues to account for where resources were to be spent, however effective asset management recognises many social and economic factors, interacting with all service delivery teams and key stakeholders to consider all aspects of successful property management during these times of change. Using the asset management modelling criteria, areas with long term high turnover of properties and high void costs have been reviewed. A number of option appraisals have been considered over the last 12 months, with the following outcomes: On three schemes we will sell the properties on the open market as and when they become vacant; A fourth scheme is to be considered for alternative use in partnership with a regional mental health trust, with a view to helping those leaving care and support homes to have good quality, well managed homes outside of the hospital environment; Elm House, Stockton and Windlestone House, Billingham (medium rise flats) have been recommended for disposal through demolition; and A number of other schemes have been identified for appraisal with options currently being explored. These options are being considered in conjunction with the review of the business plans in light of the recent budget announcement. 12
Priorities from the 2014 VFM Self-Assessments Thirteen Group and its Partner Landlords maintain high level 30 year business plans and detailed rolling 5 year budgets, which have been updated for 2015/16. Reflecting on 2014/15, the Boards made significant progress with their strategic priorities, as follows: 1. Building a great organisation Office accommodation was reviewed, and the building of the new Northshore HQ completed, resulting in savings from rationalising or closing a number of locations. Thirteen Care and Support was established, bringing together Norcare and supported housing services from Tees Valley Housing, to streamline and improve supported housing service provision, working together to stimulate market growth. Sound ICT support for services was established from Day 1; procurement was completed for an integrated ICT management system and the project plan implemented, with a go-live date of November 2015. A review of Group wide operational strategies was undertaken and a schedule of new strategies developed and reported to the Partner and Group Boards. Priority was given to customer interfaces and intelligence, including the Customer Service Strategy, Customer Involvement Framework and Communications Strategy. In addition essential corporate strategies were developed, such as the Transformational Framework, incorporating People, ICT and Accommodation strategies, Assurance Strategy and Asset Management Strategy. One of the key objectives for the Thirteen Group was to achieve value for money and efficiencies on service delivery. The 2013/14 VFM self-assessments for all Group Partners were completed, published by the deadline of 30 September 2014 and approved by the HCA. A customer friendly version was also published on the Group s websites. This will remain a key objective each year. Another key priority was to regain G1 regulatory status for governance and retain V1 status for financial viability. Both of these outcomes were achieved and processes put in place to ensure standards are maintained. The Group s Project Management framework was reviewed in May 2015 and a business case review pro-forma implemented. The framework will be used to support the business planning process through understanding both human and physical resource allocations. Progress against projects will be reported, by exception, to the relevant Boards and Committees. The performance of Partner Landlords in relation to their key performance indicators was within projections, with the exception of the number of voids. A project group was established to manage and improve void performance and end quarter performance at June 2015 was indicating a significant improvement in this area. Performance outturns, actions and revised measures were reported to Boards throughout the year. The Thirteen Customer Involvement framework was developed and implemented, including the Thirteen Complaints Panel which the Partner Boards have approved as the Companies designated complaints panel. 13
Housing Hartlepool supported Hartlepool s Housing Strategy, which was informed by the Strategic Housing Market Assessment undertaken by Hartlepool Borough Council and an in-house customer perception study, and is pending approval. Grove Hill redevelopment in Middlesbrough is ongoing, with plans to extend the joint venture to North Ormesby agreed by the Erimus Housing Board. Joint investment and continuing collaborative working has provided greater opportunities for the scheme. The Allocations and Empty Homes Strategy has been reviewed to promote tenancy sustainability and incorporate the provision of quality home fixtures and fittings, including carpets, white goods and decoration. Performance outturns indicate that there has been a positive impact on void rent loss with a reduction of 43k on the projected amount and the number of empty properties has reduced by an average of 10% across the Group. A strategic review of care services was undertaken by Peter Fletcher Associates; this has informed the development of the Older Persons Strategy, with a view to aligning services with operational delivery. Tees Valley Housing s supported housing provision was transferred to Thirteen Care and Support, which has enabled the creation of a single business unit with a dedicated Board and a new management structure. This structure clearly separates the service delivery and service development functions, which are consistently applied throughout our area of operation. Efficiencies have been noticeable in the local authorities where historically both Norcare and Tees Valley operated, for instance in County Durham and Sunderland. An environmental improvement programme has been delivered in partnership with Groundworks. 2. Promoting Resilience and Sustainability Mitigation of the effects of welfare reform was at the forefront in 2014/15. The Welfare Reform hardship budget has been maintained and a number of initiatives were implemented, with outcomes reported to the Partner and Group Boards. The number of cases of arrears increased in the Partner Landlords that did not have a Discretionary Housing Fund, and as a result this will be extended across all Landlords in 2015. The redesignation of low demand high rise accommodation to meet the higher demand for smaller properties proved successful: more properties were let, void costs were reduced, and the number of high rise tenants owing more than 50 reduced by 5%. The Treasury Management Strategy was agreed and work has commenced to review longterm funding arrangements. We are currently developing our Funding Plan with the aim of accessing competitive funding markets to reduce the cost of borrowing going forward and maximise the use of our property assets in providing security for the loans. In conjunction with Partner Boards, key stakeholders were engaged through the merger and new partnerships and collaborative working relationships established. Thirteen Group is committed to adding value to communities through social investment. The approved Inclusion Strategy outlines the Group s commitment to financial and digital inclusion for customers. Initiatives to help customers and communities included the Big Lottery funded Know your Money (KYM) project which supports customers with money management, promoting the local Credit Union and addressing fuel poverty through investment in fuel efficient technologies. A Corporate Social Responsibility Strategy is being developed. The Housing Associations Charitable Trust (HACT) model of calculating social value has been implemented and initiatives are being assessed for added value. 14
The Employability Service has been reviewed in line with the Corporate Social Responsibility Strategy. Committed regeneration activity on Swainby Road and Victoria in Stockton, and Mandale in Thornaby, has been delivered in accordance with the agreed programme. 3. Committed to Growth and Adding Value The Development Strategy and delivery plan were agreed by the Boards and the main elements of our bid approved by the HCA, further confirming the ongoing recognition of VFM through development delivery. Working groups were established to consider and develop market rented proposals and consider marketing social housing to new market groups/clients. Greater caution was applied to the objective to support tenants into shared ownership due to some weaker sales performance, with decisions made to revert some stock back to rental. Erimus Housing financially supported the submission of the successful bid by a consortium, which includes Thirteen, for the Transforming Rehabilitation project. The lead partner for the Through the Gate element is now Thirteen Care and Support. The Fuel Poverty Strategy has been approved in principle and we have entered into a collaborative agreement with a range of other Registered Providers to form a joint company Your Energy Services NE Ltd (YES) - to help reduce tenants fuel bills. Further options will be considered in 2015/16. Ambitions to build mixed communities and enable added value have been appraised and targets are in place. Development proposals to deliver mixed tenure and economy developments have been approved in Earswick York, Morpeth and Durham. The potential for specialist developments such as Extra Care, retirement villages and student accommodation has been considered in both the Development Strategy and Older Persons Strategy. The aim to review the commercial premises service to provide advice linking to neighbourhood sustainability has been deferred for future consideration, in line with the Laying Firm Foundations business objective. 15
6. VFM Outcomes and Achievements Return on assets We appreciate the importance of our assets, in ensuring that they generate a return in terms of their financial, social and environmental impact, and of maintaining our assets, particularly our housing properties, so that they provide good quality homes for our tenants to live in, and that they last for generations to come. One measure of the return on assets is in terms of generating a surplus that can be reinvested in our business to support our objectives going forward, which is shown in the tables below. The benchmarks shown are from the Homes and Communities Agency 2014 Global Accounts of Housing Providers, which are produced from the regulated social housing sector. The benchmark figures used for Erimus Housing, Housing Hartlepool and Tristar Homes are those for Large Scale Voluntary Transfer Associations. The benchmark figures used for Tees Valley are those for Traditional Housing Associations. The details of the return on assets for each Landlord Company are as follows: Erimus Housing Return on assets 2015 Social housing sector benchmark 2014 m Operating surplus '000 14,276 1,553 12,897 7,993 6,811 8,572 Housing property NBV '000 335,538 29,778 321,607 277,161 256,497 241,783 Return on assets 4.3% 5.2% 4.0% 2.9% 2.7% 3.5% The return on assets ratio shows a steady increase over the last 4 years with the figure being slightly below the sector average benchmark. Erimus Housing was formed in 2004 to receive the housing stock from Middlesbrough Borough Council under a large scale voluntary transfer. The initial years include a significant investment in properties to meet the promises to tenants following transfer. Now that those promises have been met we expect the investment in our properties to be in line with a long term maintenance and improvement strategy and the return on assets ratio to be in line with the sector norm. The return on assets ratio increased in 2013/14 following the transfer of 1,076 properties and associated buildings from Tees Valley Housing to Erimus, and Erimus transferring 119 properties and associated buildings to Tees Valley Housing. The primary aims of this transfer were to provide efficiencies across the Fabrick Group within the management and maintenance of housing stock, to increase the strategic role of Erimus within Middlesbrough and to create increased capacity for Tees Valley to develop new properties. The return on assets ratio increased further in 2014/15, which can be partly attributed to the inclusion of the rental income and associated costs of the stock transferred in 2013/14 now being included for a full year, along with no property impairment being identified this year (2013/14 1,049,000). 16
Housing Hartlepool Return on Assets 2015 Global benchmark 2014 m Adjusted operating surplus '000 7,851 1,553 8,567 6,382 1,492 3,250 Housing property value '000 177,701 29,778 158,256 146,510 123,192 100,649 Return on assets 4.4% 5.2% 5.4% 4.4% 1.2% 3.2% The return on assets ratio shows a decrease in 2014/15 due to increased expenditure on Major Repairs and Property Depreciation, with the figure now being below the 2014 sector average. Whilst expenditure on major repairs is similar to last year, more environmental work being completed has made it possible to charge more to income and expenditure accounts, which has had an impact on the operating surplus. Housing Hartlepool was formed in 2004 to receive the housing stock from Hartlepool Borough Council under a large scale voluntary transfer. The initial years include a significant investment in properties to meet the promises to tenants. Now that those promises have been met we expect the investment in housing properties to reduce to levels more in line with a long term maintenance and improvement strategy, and the return on assets ratio to be in line with the sector norm. Tees Valley Housing Return on Assets 2015 Social housing sector benchmark 2014 m Operating surplus '000 6,204 2,586 6,934 7,493 6,610 7,547 Housing property value '000 150,905 48,376 143,279 161,809 158,744 135,513 Return on assets 4.1% 5.3% 4.8% 4.6% 4.2% 5.6% The return on assets ratio showed a steady increase from 2012 to 2014, with a slight decrease in 2015 to 4.1%, which is below the sector average benchmark. This reflects the fact that Tees Valley is a mature traditional housing association and our objective of developing new homes for those in need where possible. There have been some significant changes to the activities undertaken within Tees Valley over the last year. Firstly with the stock transfer carried out during 2013/14 which now impacts the full year, along with the transfer of supported housing activity to Thirteen Care and Support, both transfers being within the overall Thirteen Group. 17
Tristar Homes Return on Assets 2015 Social housing sector benchmark 2014 m Operating surplus '000 7,090 1,553 (1,035) (4,116) 6,405 5,945 Housing property value '000 179,887 29,778 169,743 146,802 127,163 98,150 Return on assets 3.9% 5.2% -0.6% -2.8% 5.0% 6.1% The return on assets ratio shows a decline in 2013 and 2014 and whilst it is now improving the figure remains below the sector average. The main reason for this is that Tristar Homes is in the final years of fulfilling promises to tenants following the large scale voluntary transfer (LSVT) that took place in December 2010. This includes a significant investment in properties, with investment in housing properties of 27.5million during 2014/15. Had this investment not taken place, the return on assets would have been 5.55%. Once the transfer promises have been delivered then we would expect the return on investments to increase to be in line with the sector norm. 18
Value of assets Housing Properties The properties are valued above based on their ability to generate income (rental income less expenditure on management and maintenance etc.) which is based on an independent valuation by a qualified valuer and produces a net present value (NPV) per property. We have analysed our properties further by reviewing a number of indicators including demand, voids and bad debts along with maintenance costs, and this has assisted the Boards in making investment decisions on properties. Responsibility for delivering the Asset Management Strategy and appraising our stock rests with the Company s Asset Management team. As well as having a Technical Surveying team who carry out in-depth inspections of properties, through a combination of income vs expenditure assessments and GIS mapping we are able understand the current and potential future performance of homes. We have developed the option appraisal of our housing properties further, and are able to: Assess current refurbishment requirements and costs Examine historic repairs and predict future trends Check the 30 year financial business plans to identify programmed works/costs Examine neighbourhood indicators such as void costs and rent loss Through this analytic method we are able to identify assets that make healthy returns and those that do not, as well as map areas and trends within estates, to enable us to deploy resources to areas most in need of attention. This data, together with key financial data such as NPV, disposal costs and potential yield from market sales, is used to inform the annual business planning process. To enhance the data we hold, local intelligence, which may not be recorded on systems, is gathered from staff working in our neighbourhoods. We use GIS mapping to identify hot spots of low performing stock in order to focus our efforts on those areas most in need. An example of red, amber and green mapping is shown below. 19
We have developed a process to bring together all relevant data which is then reviewed by a cross-group team to agree the options to be considered. These options can include developing objectives for the Neighbourhood Plans, which identify local issues to be addressed, proposals for investment or disposal, or entering into discussions with local authorities and other partners to develop a wider approach such as regeneration. Once the options have been explored and developed they are reported to the Leadership Team for consideration and subsequently reports will be presented to the relevant Board for approval. 20
Investment in existing properties The varying levels of investment detailed below reflect the specific and differing needs of each individual landlord. Erimus Housing Erimus Housing has increased the level of return on assets whilst continuing to invest in its properties, e.g. carrying out major repairs as detailed below. Major repairs 2015 '000 '000 '000 '000 '000 Expensed 7,190 6,778 6,729 8,738 6,758 Capitalised 2,966 5,385 5,787 3,085 5,676 Total 10,156 12,163 12,516 11,823 12,434 All properties achieve Decent Home standard and are upper quartile when benchmarked with Housemark. The average benchmark for the housing sector of major repairs per property for 2013/14 was 1,179 for LSVTs, with the comparable figure for Erimus Housing in 2015 being 890. The merger and bringing together of teams has provided the opportunity to review our ability to provide value for money for future years, and as a result slippage on planned works has been deferred to 2015/16. Housing Hartlepool As mentioned previously, Housing Hartlepool made a significant investment in its properties to meet the promises to tenants following the LSVT from Hartlepool Borough Council. The table below shows the level of major repairs carried out over the past 5 years. Major repairs 2015 '000 '000 '000 '000 '000 Expensed 6,140 5,268 5,269 5,868 5,280 Capitalised 3,215 4,243 2,379 1,425 879 Total 9,355 9,511 7,648 7,293 6,159 All properties achieve Decent Home standard and we continue to invest in energy efficiency programmes to further improve existing good performance levels. The average benchmark for the housing sector for major repairs per property in 2013/14 was 1,179 for LSVTs, with the comparable figure for Housing Hartlepool in 2015 being 1,272. The increase in 2013/14 and 2014/15 compared to previous years is due to the implementation of the next 5 year cycle of component replacement, a peak in costs that will not be replicated. 21
Tees Valley Housing Tees Valley has continued to invest in its existing properties. The table below shows the level of major repairs carried out over the past 5 years. Major repairs 2015 '000 '000 '000 '000 '000 Expensed 1,362 1,518 1,692 1,485 707 Capitalised 802 1,588 2,192 1,222 1,341 Total 2,164 3,106 3,884 2,707 2,048 All properties achieve Decent Home standard and are upper quartile when benchmarked with Housemark. Reduced expenditure on major repairs is due, in part, to the transfer of stock from Tees Valley to Erimus, resulting in fewer properties being maintained. The average benchmark for the housing sector of major repairs per property for 2013/14 was 707 for traditional housing associations, with the comparable figure for Tees Valley Housing in 2015 being 538. Tristar Homes As mentioned previously, Tristar Homes has made significant investment in its properties to meet the promises to tenants following the LSVT from Stockton Borough Council. The table below shows the level of major repairs carried out over the past 5 years. Major repairs 2015 '000 '000 '000 '000 '000 Expensed 10,274 20,934 22,425 3,990 694 Capitalised 17,191 9,605 8,642 5,799 224 Total 27,465 30,539 31,067 9,789 918 All properties achieve Decent Home standard and are upper quartile when benchmarked with Housemark. The decrease from 2013/14 is due to the majority of major works to properties having now been completed. The average benchmark for the housing sector for major repairs per property in 2013/14 was 1,179 for LSVTs, with the comparable figure for Tristar Homes in 2015 being 2,236. This demonstrates the significant investment in housing properties made during this period. 22
New development During the year our Partner Landlord Companies used the capacity created from existing assets, along with grant funding and loans, to develop 564 new properties in line with our objective Committed to Growth and Adding Value : Erimus Housing 92 Housing Hartlepool 198 Tees Valley Housing 134 Tristar Homes 141 We plan to develop a further 1196 new properties over the next 5 years: Erimus Housing 117 Housing Hartlepool 228 Tees Valley Housing 466 Tristar Homes 385 The Board has approved plans for its subsidiaries to deliver 1196 new properties over the next 5 years, at a total cost of 95.9million. This investment will be funded from new borrowings and social housing grant from the Homes and Communities Agency, along with internally generated surplus. Undrawn loan facilities of 64.6million are available under existing arrangements. Each development scheme is assessed using our development appraisal model, inputting data at a property level, which produces long term cash flows, a net present value (NPV) and payback period. The assumptions used are in line with our long term business plan and each scheme is approved by the appropriate Board. It is recognised that new schemes do not provide a financial return in the short term, but do provide a social benefit in providing homes for those in need, and are included in the long term business plan to ensure that financial viability is maintained. The appraisal method used allows us to compare schemes and assists with capital rationing across the Group linked to our Development Strategy. 23
Debt per social housing property The impact of our strategy for investing in new and existing properties on our debt per property is shown in the following tables. The Partner Landlord Companies 30 year business plans show that our objectives can be met from within existing facility levels and with no breach to financial covenants. It should be noted that these plans are being revisited as a result of the recent budget announcement and we envisage that they will still deliver loan compliance. Erimus Housing Debt per social housing unit 2015 Social housing sector benchmark 2014 '000 '000 '000 '000 '000 '000 Total Debt 114,629 114,616 114,444 85,000 82,000 Total social housing units 11,415 11,370 10,441 10,555 10,351 Debt per unit 10,042 17,238 10,081 10,961 8,053 7,922 The table shows a gradual increase in debt per unit in delivering new units and investing in existing housing assets. This has now settled at around 10,000 per unit which remains well below the sector average benchmark. Housing Hartlepool Debt per social housing unit 2015 Global benchmark 2014 Total Debt '000 68,000 50,000 47,000 50,000 49,000 Total social housing units 7,660 7,383 7,137 7,073 6,938 Debt per unit 8,877 17,238 6,772 6,585 7,069 7,063 The table shows a marked increase in debt per unit in delivering new units and investing in existing housing assets, however this remains below the sector average benchmark. 24
Tees Valley Housing Debt per social housing unit 2015 Social housing sector benchmark 2014 '000 '000 '000 '000 '000 '000 Total Debt 86,054 87,454 94,630 93,463 74,615 Total social housing units 3,992 4,175 4,946 4,893 4,675 Debt per unit 21,557 26,540 20,947 19,133 19,101 15,960 The table shows a gradual increase in debt per unit in delivering new units and investing in existing housing assets, however this remains below the sector average benchmark. In 2013/14 Tees Valley repaid 6m loan funding following the stock transfer to Erimus Housing. This has reduced interest payments going forward. Tristar Homes Debt per social housing unit 2015 Social housing sector benchmark 2014 '000 '000 '000 '000 '000 '000 Total Debt 63,000 39,000 10,000 4,000 0 Total social housing units 10,419 10,395 10,073 10,188 10,329 Debt per unit 6,047 17,238 3,752 993 393 0 The table shows an increase in debt per unit in delivering new units and investing in existing housing assets, however this remains well below the sector average benchmark and is expected to rise further as we complete our promises to tenants. For all Landlords, we have fully funded the business plans from existing loan facilities and all debt levels are less than the sector average. 25
Financial and operational performance Thirteen uses the HCA global accounts and FVA returns to compare high level financial indicators to national averages, and works with its peers in the North East region to compile a suite of performance data from FVA returns to compare financial performance. We routinely benchmark key performance indicators internally with our Landlord Partners, and externally with the Housemark National Benchmarking Club. We also complete the Housemark Core Resource Benchmarking exercise annually to benchmark performance and costs. Overall financial performance compares favourably with the global accounts, however there are some key operational indicators that are lower or median quartile when compared with the National Benchmarking Club. The key financial and operational indicators are presented below: Management Costs /unit 2015 Social housing sector benchmark 2014 Erimus Housing 533 936 506 614 594 585 Tees Valley Housing 637 1,033 692 569 445 413 Housing Hartlepool 516 936 654 593 575 573 Tristar Homes 596 936 676 967 904 801 Maintenance Costs /unit 2015 Social housing sector benchmark 2014 Erimus Housing 924 1,035 860 825 863 699 Tees Valley Housing 718 1,000 678 543 463 533 Housing Hartlepool 955 1,035 896 976 1,007 920 Tristar Homes 1,070 1,035 948 920 1,109 916 Management and maintenance costs compare favourably with national averages, although we recognise that there are inconsistencies between Landlords. We look at each individual Landlord separately, and allocate costs according to the work carried out. Different Landlords have different levels of activity the actual costs reflect the individual Landlord at a local level. Tees Valley management costs are higher than other Partners due to the profile of the stock being more rural and having scheme specific costs. The overall management cost per unit for Erimus has increased marginally over the past year, in part due to a re-alignment of costs within the new Thirteen Group, as well as some short-term additional costs during the merger year. All others have decreased. We are expecting to see savings in the longer term arising from the organisational structure that is now in place following the merger into Thirteen. 26