Economy Effectiveness Efficiency Value for Money Statement 2016/17 Great homes and services Strong and vibrant communities
Value for money statement Purpose of this statement: to articulate and demonstrate the delivery of a comprehensive and strategic approach to value for money in the achievement of our strategic objectives. What is value for money? In simple terms value for money is the relationship between effectiveness, economy and efficiency. Achieving value for money means that we can better deliver the aspirations in our corporate plan. It is about making sure that the right service is being delivered at the right price. Economy Effectiveness Efficiency Great homes and services Strong and vibrant communities As noted, has the following six strategic objectives: Valuing our customers Our homes will be at a quality that we can be proud of, with services to match. When someone is looking for a great place to live, we want them to think about first. We will have a good understanding of all our customers so that we can deliver what they need in a way that suits them. Meeting housing and related needs Our customers will include those looking for their first home right through to those who need a home that meets their support needs. We aim to protect the valuable social housing that we have. We will use our particular skills and resources to help provide support services to help people improve their lives. Growth with a purpose We will increase the number of new good-quality homes for affordable rent, purchase and shared ownership. Every penny counts By maximising opportunities, working smarter and increasing efficiency across the Group, we will have more resources to create more great places where people want to live. Able to stand on our own We will develop our commercial activities to make a profit to support our growth and add financial strength to the Group. We will carry out commercial activity to support our social purpose, never as an end in itself. A great team We will continue to develop a culture that encourages people to meet their potential and deliver excellent customer service. Our value for money goals: The achievement of value for money is explicit in our business plan for 2017-22 with specific goals identified to deliver key strategic objectives: Every penny counts Focus on working smarter and increasing efficiency through the transformation of our processes, structures, systems and technology. Improve our approach to procurement to enable us to buy better. Minimise the level of lost income through voids, arrears, and bad debts. Growth with a purpose Strategically manage our assets (regeneration and strategic disposals) to maximise our ability to increase the number of good quality affordable homes. And our values and culture are the key driver for achieving value for money at : All for one we work as a team. Do what it says on the tin we get it right first time. The things we could do we actively look for ways to improve. Boo to bureaucracy we keep it simple. 2
Maintaining a strategic focus on value for money Our business planning cycle and performance management approach ensures that we maintain a strategic focus on value for money. JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY Access to a range of benchmarking data and other metrics allows us to see: HouseMark submission June HouseMark results September Other benchmarkng data eg ICS/Shape up Business plan sign off March how performance in key areas of the business compares with others (are we good?); what it costs to deliver our services relative to others (are we expensive?); and what are our cost drivers are eg overheads (why our costs are what they are). Business plan process (actions informed by benchmarking data) Oct Jan VFM statement May We use this information to make informed decisions about what we need to do differently as part of the business planning process. In other words, we actively look at the information and identify what changes we need to make for example, do we have the right model for delivering x service, do we have the right structure? Quarterly HM data Operational performance management Quarterly HM data Quarterly HM data Quarterly HM data This information is used to set our targets for the business plan and operational metrics to measure progress. Performance is then monitored and challenged via our collaborative management teams, who have a specific focus on key business areas, our Leadership team and our Board. We will be participating in the pilot of the Sector Scorecard during 2017/18 to further inform our approach into 2018 and beyond. 3
Managing and monitoring our performance Our plan on a page provides an at a glance overview of performance against all our business plan targets on a quarterly basis. The detailed performance information is also available on our intranet. Valuing our customers 1 9 2 3 6 4 5 1 3 4 2 Able to stand on our own 1 4 5 2 3 A great team 8 1 7 2 1 1 3 3 4 2 2 Every penny counts 3 Meeting housing and related needs Growth with a purpose LANDLORD SATISFACTION LAST CONTACT SATISFACTION % VOID RENT LOSS OPERATING MARGIN MANAGEMENT COST PER UNIT 4
Our key performance indicators (KPIs) provide a focus on those areas deemed most important to our performance. For example, our aim to achieve an absolute reduction in management costs and still improve customer satisfaction is monitored here. Customer 2017/18 target Financial 2017/18 target Customer satisfaction with as their landlord 86% Operating margin (RP only) 28% Satisfaction with outcome of last contact 90% Group management cost per unit 1,037 Customer satisfaction with the quality of their home 80% Delivery 2017/18 target Colleagues 2017/18 target Rent lost due to homes being vacant as a percentage of the annual rent roll Total units owned 1% 11,865 Voluntary turnover Engagement Index 5-15% 75% 5
How have we done our performance 2016/17 Our KPIs and performance as at 7 April 2017 The following table sets out the five key headline Group performance targets from our business plan that we have used as a past measure of our corporate success with staff. Target 2016/17 Customer satisfaction with as their landlord Customer satisfaction with the quality of their home Rent lost due to homes being vacant as a percentage of the annual rent roll Operating margin (RP only) Group management cost per unit 86% 79% 1.0% 25.0% 1,077 75% 78% 1.0% 28.6% 1,053 6
Our business plan for 2016/17 also identified a number of goals and activities in relation to improving our value for money. Every penny counts Group Ltd Group Ltd Homes Ltd Community Housing Oxbode Housing Association Ltd Westlea Housing Association Ltd Oxford Citizens Housing Assocation Ltd Homes Ltd Community Housing Westlea Housing Association Ltd GS Energy Services Ltd Estates Ltd Construction Ltd GS Energy Services Ltd Estates Ltd Construction Ltd Registered provider Commercial company Simplify the Group structure to reduce complexity, inefficiency and risk. The Group achieved the merger of two subsidiaries and the parent thus simplifying our group structure from the previous five registered providers in 2015......to three registered providers with effect from October 2016. 7
Achieve an absolute reduction in management cost per unit from 1,125 in 2015 to 1,077 by Q4 of 2016/17. A re-focus on core housing service staffing structures and changes in benefits, including the closure of all our defined benefit pension schemes and harmonisation of terms and conditions across the Group, have resulted in significant reductions in management costs. There has also been a review of our office provision resulting in the consolidation of our offices. One office was closed in Gloucester and major works were undertaken in our Chippenham office to enable us to move staff from our Swindon office so that can be vacated when the lease expires in 2018. Our Oxford office is also being marketed for disposal during 2017/18 as part of the review of service provision. The management cost target for 2016/17 was met. Make a marked step towards becoming a paperless organisation and increasing our own digital inclusion. 2016/17 saw the first stages of our digital transformation to drive down costs and improve service. This included the commencement of several major projects which will produce further efficiencies and improved effectiveness over the next few years including paperless Board and Committee papers; a review of our purchase ledger with a view to implement a purchase to pay system; development of a self service portal for customer repairs and rent payment; and the first stages in the introduction of dynamic scheduling for responsive repairs. We have also increased our use of mobile devices and other technology which has led to a reduction in printing from 2.2m sheets in 2015 to 1.4m at the start of 2017. This also led to a 30K per annum reduction in our copier and printer costs. Improve our approach to procurement to enable us to buy better. A strategic review of our procurement approach was launched in 2016/17 including the appointment of a procurement transformation lead for the duration of the project (12-18 months). Key areas identified are materials, fleet management and effective procurement of systems to support our digital transformation. This is alongside creating a wider shift in our culture and processes in relation to procurement and contract management to instil a long term change to effect greater value for money into the future. Improve our performance on lettings, voids, rent arrears, year on year. Voids are loss of rent where there is empty property, due to either works being undertaken on the property; and/or there is no available tenant. Voids losses are an area of focus for the Group and a lean review was undertaken on the void process during 2016/17. This, combined with different methods of letting our hard to let properties has resulted in an improved performance for this year. Void rent loss for the year ended at 1.0% exactly on the set target. 1.50% 1.25% 1.00% 0.75% 0.50% Void losses % 2013 2014 2015 2016 2017 Void losses Some 55+ housing schemes remain difficult to let because they no longer reflect modern day living. We have undertaken a review of some schemes as part of our strategic asset review and have identified some schemes to be decommissioned over the next few years. In addition, we re re-designing some schemes to increase flexibility and demand, such as reconfiguring bedsits into one bedroom flats. Despite pressure from welfare reform changes, our 2016/17 total arrears across all tenure types have improved over the year. Year end total arrears performance at 5.8% is approaching the median and we compare well against a historical peer average of 6.5%. These arrears include amounts owed in housing benefit from local authorities. 8
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 2013 2014 2015 2016 2017 Growth with a purpose Rent arrears % Rent Arrears % Continue the strategic review of our assets. A stock profiling exercise provided us with additional asset information to inform our strategic asset review (SAR). This indicated that approximately 1% of our properties have a negative Net Present Value (NPV), with the Group average in the region of 34K. 200,000 150,000 100,000 50,000 - - 50,000-100,000 NPV of net rent (excluding blocks, streets and leasehold) The strategic disposals programme achieved our target during 2016/17. Our regeneration plans for some of our poorer performing assets also progressed. Work on a scheme at Culverhay through 2016/17 resulted in planning permission being granted in April 2017. This includes demolishing 65 older properties and replacing them with 109 new ones. We continue to look forward at the next steps and 2017/18 will see further work around stock profiling to inform our SAR and disposal programme. Increase the number of high quality homes available to meet the housing needs of our customers with a target of 200 retained units per annum. Overall unit numbers increased, albeit production for 2016/17 was below target at 128 new homes (2015/16: 227) at a cost of 18.5m (2015/16: 30.2m) and we invested a further 10.7m (2015/16: 10.2m) in capital work in progress on properties in our local community. The vast majority of these properties are at rent levels significantly below market levels, which creates a social dividend as we are effectively investing in our local community. To address this shortfall and achieve our growth appetite we have, through the course of 2016/17, established a new operating model and structure in our development division. This has included the recruitment of a managing director to specifically focus on unit growth within the registered providers (RPs) as well as generating income through open market sales. 11750 11700 11650 11600 11550 11500 11450 11400 11350 Total units owned (excluding those managed for others) Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 9
Valuing our customers To deliver a good quality core service to customers based on a clear set of service standards delivering top quartile levels of satisfaction (86%). This year has seen a decline in customer satisfaction. This is linked to a major organisational transformation that was implemented at the start of the financial year. Significant staff restructuring, aimed at delivering more efficient services into the future, unfortunately led to delays in some areas of our planned repairs. We achieved full recruitment into the affected departments in Autumn 2016. Isolating performance over the period since that point shows an improving trend. We started the financial year 2016/17 with a monthly satisfaction rate of 80% in April and have recorded a overall satisfaction rate for April 2017 at 78% so we feel that we are on the road to recovering, and improving our satisfaction. We anticipate this trend improving as shown in the results below from October 2016 onwards and the Customer Service Committee has oversight on behalf of the Board. Overall satisfaction 2017 Overall satisfaction since October 2016 95% 95% 85% 85% 75% 75% 65% 65% 55% 55% 45% 45% 35% 35% 25% April May June July August September October November December January February March April 25% October November December January February March April 10
The trend is also mirrored in the steady process of recovering the repairs satisfaction in the last six months: 95% 85% 75% 65% 55% 45% 35% Repairs satisfaction since October 2016 Making a difference Deliver community projects that effectively contribute to the growth and sustainment of thriving, resilient communities and improve overall customer satisfaction. We have worked in partnership with other agencies to deliver digital inclusion training in Wiltshire and Oxfordshire. This has been in preparation for the roll out of Universal Credit, as well as giving customers the confidence to access better value for money services with energy suppliers, for example. We received 11,850 funding ( 47,397 over a four year period) from the National Lottery, to fund the Rose Hill Project in Oxfordshire. The purpose of this is to increase resources and sustainability within the community as a whole, once the lottery funding ceases. Key projects last year include food recycling, a youth club with meals for those who attend, digital inclusion training and fitness classes for residents in the area. 25% October November December January February March April We accessed joint funding of 6,000 from local authorities and parish councils to improve parking in an area in Wiltshire, following numerous customer complaints. To ensure ongoing improvement, a lean review was conducted in property services during the course of the year and actions are now being implemented. This is alongside the digital projects previously outlined ie self service and dynamic repairs scheduling which are both aimed at providing an improved service around repairs a key driver for satisfaction. also joined the Institute of Customer Service in late 2016 to inform the development of a new customer experience strategy. Improving customer satisfaction remains a key focus for 2017 and beyond. We secured 2,000 in funding from Wiltshire Council to run a community cohesion project. We worked in partnership with other agencies in Oxfordshire in the delivery of community projects to improve community cohesion and the appearance of estates. We have supported community projects in Gloucestershire, including the creation of a new residents association following consultation at a stakeholder meeting. During 2016/17 we helped fund debt and advice agencies for customers to access a preferential service across our operating areas. This was a total investment of 74,000. Outcomes for customers during this year include 676,988 in benefit take up and debt advice provided for a total amount of 476,555. This is a return on investment of approximately 15 per 1 invested. Our Supported Housing team works across a range of needs providing specialist accommodation and support directly, such as refuges and a mother and baby unit in 11
Wiltshire, or providing adapted accommodation, with other partners providing the support, such as for adults with learning difficulties across Oxfordshire. We also work in partnership with commissioning authorities such as Gloucestershire to provide community-based services providing specialist domestic abuse support and advice, and providing more general support for people at risk of homelessness. All our supported housing projects contribute to our business as well as delivering value to commissioners and local communities. We provide additional staffing in our sheltered and extra care schemes for older people to help manage the facilities (such as communal lounges, laundries, gardens and activity rooms), and to help residents with finance and community integration issues and liaise with specialist care and support agencies. This enables those residents to remain independent for longer, and move into schemes more easily, thus having a positive impact on our void periods and letting times, as well as improved outcomes for residents and linking them up with other local services. Further understanding our performance: performance over time We have also reviewed other key indicators, which demonstrate our value for money. They are: Social Housing Margin (earnings before interest, tax and depreciation and amortisation EBITDA) A good earnings margin is fundamental to ensuring the organisation is generating sufficient funds to enable it to invest in its operations going forward. The charts below show trends on our core social housing turnover and operating earnings (these exclude non-cash adjustments due to depreciation, impairment and pension provisions due to changes in accounting). They also exclude non social housing activities. A upward trend shows we are delivering better returns on investment. 40% 35% 30% 25% Social Housing EBITDA % 2013 2014 2015 2016 2017 EBITDA % Group social housing margin; management and maintenance costs per unit; void losses; and cost of funds. We have set out below our performance in each of these over the recent period. m 100 80 60 40 20 0 Social Housing Turnover and EBITDA 2013 2014 2015 2016 2017 Turnover Group EBITDA Group 12
Management cost per unit Reduction in overall management costs remains central to our business plan. We continue to outperform our target. The Board has set a five year corporate plan target based on a definition of management excluding the cost of managing repairs at 1,024 per unit by 2020. Maintenance cost per unit In the past few years we have carried out a full review of our investment strategy linked to our corporate plan. As a result significant additional investment was made to our homes relative to 2016. Maintenance costs include capitalised major repairs. Total maintenance cost per unit is now 1,664, close to the peer average of 1,667. 1,500 Management cost per unit 1,800 Maintenance cost per unit 1,400 1,300 1,600 1,200 1,100 1,400 1,000 2015 2016 2017 Management cost per unit 1,200 2015 2016 2017 Maintenance cost per unit 13
Cost of funds Our cost of funds (eg interest costs) is relatively low. We have secured past funding at good rates which lower our overall cost of funding going forward. At the end of March 2017 the element of variable debt was approximately 28% of total drawn facilities. This takes some advantage of the relatively low interest rates currently available and provides certainty on past levels of fixed funding. All decisions are informed by our treasury strategy. 4.60% 4.50% 4.40% 4.30% 4.20% 4.10% Cost of funds % 2015 2016 2017 Cost of funds % Understanding our current performance: benchmarking costs and income To understand better our existing performance on costs we have looked at our absolute (ie published figures) and relative (ie how our costs compare with others) costs, through benchmarking. Background on benchmarking We gain a fuller assessment of s value for money performance by comparison to other similar sized registered providers. Consequently, a key focus for the value for money statement is how benchmarks against others. One source of housing benchmarking data is HouseMark and we use the information they provide throughout the year to monitor our operating performance. At the year end, we obtain Shape-Up analysis provided by Financial Services Management Development Ltd (FSMD). The financial benchmarking reports, provided by Shape- Up, are only available after the financial statements of our comparators have been published, therefore this analysis compares the results for year ended 31 March 2016 and then is rolled forward for the period ended 7 April 2017. The benchmarking in Shape-Up compares to a peer group of 43 similar housing association groups. Where there is similar analysis from HouseMark the benchmarking has shown a consistent story with the Shape-Up results. 14
Results A selection of key benchmark data is summarised below: 2015 2016 2017 Growth in asset value % 25.30% 0.20% 6.3% 3.0% Total revenue per unit 6,845 6,987 7,346 6,968 For performance to date the following areas have been summarised: growth; revenue and cost structures; operating surplus and interest; bad debts and arrears; financial indebtedness; and HCA benchmarking. Average Peer Group 2016 Staff cost per FTE * 32,969* 33,570* 33,719 38,178 Maintenance per unit 1,516 1,701 1,664 1,667 Operating margin % 22.3% 21.7% 26.6% 31.3% Bad debt % 0.7% 0.7% 0.6% 0.6% Total arrears % 5.3% 6.3% 5.8% 6.5% Void losses % 1.0% 1.1% 1.0% 1.2% Debt per unit 29,093 28,503 32,089 26,204 Interest cover ratio (including capitalised repairs) EBITDA MRI * adjusted for restructuring and pension deficit transition 1.92 1.85 2.04 2.21 Growth In 2016/17 asset growth was 6.3%. As per our corporate plan is using its financial resources to deliver new homes for those in housing need. The growth represents the increase in investment in work in progress and working capital. Revenue and cost structures In the last year the Group has increased its total revenue per unit to 7,346, which is above benchmark in comparison to its peers. This includes capital sales and highlights the importance of increasing our revenue streams and the saving that creates for government when comparing rents paid by residents in receipt of housing benefit to the level of benefits that would be required to pay market rents in the private rented sector. Our increased investment on maintenance and improvements means our maintenance cost per unit of 1,664 is consistent with our peers and the sector as a whole. Whilst financially this cost still demonstrates good value for money, it needs to be set in the context of the aim to improve benchmarks on resident satisfaction. This cost versus satisfaction relationship delivers value for money as the Group has made a conscious decision to invest more in improving its assets. Operating surplus and interest Following last year s transition to FRS 102 the Statement of Financial Position records s property assets at deemed cost which is based on a 2014 valuation. The impact of that is that the operating surplus is reduced because of a higher depreciation charge than if we had recorded our properties at their original historic cost. In order to benchmark consistently, if that difference was adjusted for then the operating margin (before interest and tax) is more consistent with the peer group average. We have taken advantage of historically low interest rates with our treasury strategy to fix approximately 72% of our portfolio and in 2016 arranged 20m from the government s AHF programme at very advantageous rates which will provide funds for us to develop much-needed affordable rented homes. Bad debts and arrears We continue to show good performance in this area, with the losses from bad debts as a percentage of gross rents and service charges in the best quartile and better than our peer group average of 0.6%. 15
As shown earlier in the report, our 2016/17 total arrears across all tenure types decreased to 5.8% which compares well against our peers. Financial indebtedness As noted above in Growth, has a recent history of maximising the investment use of its property assets to help deliver its charitable objectives. Consequently the debt per unit is high compared to the peer average. During 2016/17 as part of our Group amalgamation agreed changes to our lender covenants, primarily as a result of the introduction of FRS 102 and a desire to do more with the value of our assets. A sector-wide interest cover ratio, which is regularly used by rating agencies and the HCA, is EBITDA MRI (Earnings before interest, tax and depreciation and other non-cash adjustments less capitalised repairs divided by interest). has improved this ratio over the past few years and is moving towards the historic peer group benchmark average. Our financial performance has meant we have met lenders covenants and the Board expects to remain compliant in the foreseeable future. HCA benchmarking The HCA recently issued new value for money headline unit cost indicators as part of its assurance and self assessment framework. As set out in this note, the Board considers both management cost and total maintenance cost per unit as key measures for understanding our comparative performance and has been monitoring and setting challenging targets as part of delivering the best use of our resources. This conforms with the HCA VFM Standard requirement that set out the absolute and comparative costs of delivering specific services, published in July 2016. The chart below presents these key financial ratios for the Group with a comparison to the latest sector averages taken from the published HCA 2016 Global Accounts analysis. 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Group 14/15 Social housing cost per unit (CPU) Group 15/16 Management CPU Major repair CPU Group 16/17 Service charge Maintenance CPU Other SH costs CPU Average Peer Group 15/16 Summary Our financial results compare favourably in many areas to our peer group and show a positive outcome from a focus on value for money. In financial terms, the Board made a conscious decision as part of its strategic asset review to fund higher capital maintenance so that we can regenerate and create value invested in new homes and communities. The Group is participating in the pilot of the Sector Scorecard during 2017/18 to further inform our approach into 2018 and beyond. 16
Group Limited A registered society with exempt charitable status no. 7418 Registered office: Methuen Park, Chippenham SN14 0GU greensquaregroup.com