AHG Financial Statements 2013/14

Report and Financial Statements

Adactus Housing Group Limited

For the year ended 31 March 2014

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2014


Bankers :

Auditors :

P. Lees Group Chief Executive

P. Chisnell Group Director of Finance

B. Moran Group Director of Corporate Services/Company Secretary

H. Roberts Group Director of Development/Deputy Chief Executive

National Westminster Bank Plc Manchester City Centre Branch PO Box 305 Spring Gardens Manchester M60 2DB

Grant Thornton UK LLP Statutory Auditors Chartered Accountants 4 Hardman Square Spinningfields Manchester M3 3EB

Secretary : B. Moran Group Director of Corporate Services/Company Secretary

Senior Management Team :

Company information

Registered office :

Registration number :

Board members :

29433R

Turner House 56 King Street Leigh Lancashire WN7 4LJ

A. Cain (chair) S. Abbas P. Chisnell (executive member – joined Sept 2013) E. Clivery R. Davies C. Dickson (resigned Sept 2013) S. Fyfe (joined Sept 2013) T. Jenkins P. Joyce P. Lees (executive member) H. Roberts (executive member – joined Sept 2013) A. Williams (resigned April 2014)

1

Table of contents

Operating and financial review 2 Chair’s statement

Value for money statement New housing development

Tenancy services

Housing assets

Community investment

Independent auditor's report 4


Report of the board

Financial statements

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

5

Association balance sheet

Group cash-flow statement

Notes to the financial statements

1

3

Business and financial review

2

3

4

12

14 18

21 25

28

31

32

32

33

34

34

35

36

37

38

4

Our future development programme is looking extremely healthy and we aim to achieve a step-change in our output of new housing in the short-term.

Our results and our focus are due to the hard work of staff and the excellent leadership of both our board and executive and I would like to put on record my thanks to them all. In this respect, I would especially like to take this opportunity to thank our board members who will be retiring at this year’s annual general meeting for their efforts and diligence.

I have now served as Chair for three stimulating and interesting years and will step down at the annual general meeting. I do so fully confident that the board will be able to choose from a very capable pool of members to take-up the baton in my place. I will remain involved as a board member and will continue to be proud to be associated with this excellent organisation.

Alan Cain

Chair

It is with no small degree of satisfaction that, at the end of another successful year, I write to introduce the Group’s Report and Financial Statements for the year to 31 March 2014.

The results presented in this document throw into sharp relief an organisation that is operating at the leading edge of its housing association peers.

Over the course of the past five years we have continued to refine and innovate on our delivery of services to adapt both to changing customer expectations and to new technological opportunities. As a result our current operating model is I believe highly efficient and we are continuing to see both an increase in the regard our customers hold us in, and also year-on-year increasing levels of surplus generated by the business.

This is key of course as we put our surplus to good use to protect the organisation from emerging risks (such as the government’s welfare reforms) and also to fund new affordable housing which remains our core strategic objective.

Perhaps our biggest area of corporate learning during the year was to clarify that we have successfully adapted to the current low-grant environment. I think that the most telling demonstration of this is that in a year in which we delivered one of the sector’s largest new build programmes for affordable rent, we were able to do so without drawing-down any loan finance.

1 Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2014

Chair’s statement

1

3

Operating and financial review Business and financial review

2 Principal activities

The members of the Adactus group structure (the Group) build, renovate and manage affordable housing for rent and sale and work to help regenerate neighbourhoods. The Group's principal subsidiaries are housing associations, legally known as Registered Providers, and regulated by the regulation committee of the Homes and Communities Agency.

The Adactus Housing Group was formed in August 2002 although founder member, Adactus Housing Association Ltd.’s corporate origin was in 1964.

The Group's main offices are in Leigh, Chorley and Manchester.

The major organisations in the Group are four independent Co-operative and Community Benefit Societies:

• Adactus Housing Group Ltd (AHG, the non-charitable Parent).

• Adactus Housing Association Ltd (AHA, charitable).

• Beech Housing Association Ltd (BHA, non-charitable).

• Chorley Community Housing Ltd (CCH, charitable).

Together the Adactus Housing Group owns and manages 13,043 homes across 21 local authority areas in the north-west of England and employs close to 600 staff (522 full-time equivalents). The Group is the 79th largest manager of housing association accommodation in England¹.

Figure 2 highlights the geographic spread of properties managed by the Group.

¹ As measured by turnover. Source: HCA Global Accounts 2012/13 subsidiary performance consolidated to Group level where applicable.

Figure 1: The Adactus Group Structure

Beech Housing Association Ltd

Adactus Housing Group Ltd

Acuna Ltd Palatine

Contracts Ltd

James Tomkinson Memorial

Cottages Trust

Heartland Court Management Ltd

Chorley Community Housing Ltd

Adactus Housing Association Ltd


For more information: http://www.adactushousing.co.uk

4

Objectives and strategy

The members of the Adactus Housing Group share similar objects within their company rules which state that the Group’s members will:

“Carry on for the benefit of the community the business of providing housing, accommodation, and assistance to help house people and associated facilities and amenities”

This is the basis of the Group’s corporate mission shown here:

“To build, acquire and manage safe, warm and affordable housing predominately for those who are unable to pay market rates.”

“To respond effectively to the demands of our customers.”

“To make a difference in neighbourhoods by levering in resources and helping to focus community activity.”

Figure 2: Location of stock in management

For more information: http://www.adactushousing.co.uk


5

The Group’s long-term vision is framed by efforts to achieve Quality, Expansion and Diversity (QED) through its activities.

Figure 3 highlights how each aspect of the Group’s vision is interlinked.

Figure 3: Quality, Expansion and Diversity

The vision of QED provides the framework for the Group’s strategic objectives:

Figure 4: Strategic objectives linked to QED

Quality

Expansion

Diversity

Objective

Q1. Maintain effective governance

Q2. Provide value for money customer services

E1. Increase the size of the business through new group members, transfer or development

D1. Provide targeted neighbourhood investment D2. Reduce carbon emissions

For example, quality is raised through an appreciation of the diversity of customer needs and through effective investment of the efficiency savings afforded by expansion.


6

Figure 5: Financial results

2009

2010

2011

2012

2013

2014

35,773 41,517 14% (1,464) -4%

Year Operating costs £’000

Turnover £’000

Operating surplus

Retained surplus/deficit £’000

Retained surplus

39,420 45,169 13% (1,367) -3%

41,672 44,711 7% (2,383) -5%

33,379 50,150 33% 9,000 18%

33,824 53,291 33% 9,936 19%

34,984 55,793 36% 13,259 24%

The board uses a balanced scorecard approach to monitor the delivery of the Group’s strategic objectives across a broad range of Key Performance Indicators (KPIs).

Figure 6: KPI performance at 31 March 2014

Figure 6 presents the scorecard reviewed by board at the end of the financial year.

The board is pleased to report a retained surplus in the year of £13.3m (2013: £9.9m). Operating surplus has increased by three percentage points to 36% of turnover.

Operating costs per unit increased by 3% to £2,675 per unit from £2,599 per unit in 2013.

A summary of the Group’s recent financial results are as follows:

Larger rectangle size indicates greater importance of measure. Colour indicates performance within or out of target. Bold numbers indicate performance.


Performance highlights

7

The diagram shows that 23 of the Group’s 29 KPIs were within target and six were outside of target at the year end. Of these, five KPI’s were only marginally outside of target. The remaining KPI, units managed, was significantly outside of its target of 16,500 units for the year. However it should be noted that this target was set as an aspirational figure to provide the executive with a clear mandate for growth to aid potential partnership discussions with other housing associations.

Figure 7 highlights that the Group has increased its asset base by £11m² in the year which continues its medium term upward trend. All lender financial covenant ratios were met by all Group members throughout the year.

² As measured by net growth in housing proper es at cost. ³ As measured by the ra o of total loans as a percentage of social housing grant and reserves.

Figure 7: Balance sheet highlights

Fixed assets Housing properties at cost Social housing and other

Creditors: Amounts falling due within one year

2013 £’000

2014 £’000

2012 £’000

2011 £’000

2010 £’000

3,024 12,690

(32,342)

2009 £’000

Net current liabilities

Creditors: Amounts falling due after more than one year Recycled capital grant and disposal proceeds funds Pension liability

Capital and reserves

(12,382)

162,349

2,322

1,764

51,946

Current assets Properties for sale Cash at bank and short term deposits

489,189 (241,102)

2,779 7,876

(14,413)

713

182,895

2,372

1,167

39,360

478,302(238,506)

4,548 11,872

(22,183)

(41)

187,652

3,050

314

30,353

465,633 (230,357)

4,471 13,829

(27,936)

(1,954)

174,480

2,423

111

23,087

442,360 (228,788

3,707 9,285

(17,633)

(167)

152,464

628

4,104

18,341

400,010 (216,817)

5,700 8,295

(11,889)

8,339

112,378

1,588

2,842

18,684

317,925 (185,909)

Total assets less current liabilities

218,381 225,794 221,368 200,102 175,537 135,492


As only one small housing co-operative merged with a Group member in the year, the target was not achieved.

Overall, the board is extremely pleased with performance.

Highlights of the Group’s balance sheet are as follows:

Most notably, gearing³ has decreased in the year for both AHA and BHA reflecting the excellent performance of the Group as a whole.

8

Risks that may prevent the Group achieving its objectives are considered and reviewed annually by the senior management team and the board as part of the corporate planning process. The risks are recorded and assessed in terms of their impact and probability and are reported to board and audit committee quarterly together with any

action taken to manage those risks including assessment of key controls and the outcome of any action.

Figure 8 presents an assessment of the Group’s operational risks that could affect the delivery of its strategic objectives.

Risks and uncertainties

The analysis shows that the successful delivery of strategic objective Q2 “Provide value for money customer services” is impacted by the greatest number of risks. It also shows that the key inherent risks facing the business are:

• Interest rates rise leading to a breach in covenants.

• Tenant injury/death due to fire.

• Tenant injury/death due to gas.

• Changes in government legislation impact on financial resources.

• Increasing bad debts.

• Introduction of International Financial Reporting Standards leads to covenant breach.


Figure 8: Risk analysis

Objective D1 Objective D2

Objective Q2 Objective Q1 Objective E1

Acceptable Unacceptable

Residual risk assessment

Larger boxes represent larger areas of inherent risk

Sept RPI falls below business plan assumption, implying budgeted income not being achieved leading to negative impact

Building cost inflation increases Breach of Equality Act 2010 Benefits indexation

linked to CPI rather than RPI leading to tenant hardship

Interest rates rise leading to breach of covenants

Reduced Group income due to changes in government rent formula in 2015

Changes in Government legislation impacts on financial resources. (Current changes associated with welfare reform and planning)

In the current financial climate the organisation runs the risk of increasing its bad debts

Introduction of international Financial Reporting Standards (IFRS) leads to covenant breach

Overstretched/stressed staff

Inability to retain good staff

Poor performance on the Miles Platting PFI leads to higher financial deductions than expected

Failure to tackle ASB effectively and promptly

Increasing political sensitivity of our work leads to poor publicity generated by politicians or other external parties

Exposure to housing market decline: 1) reduces sale price of properties and/or inability to sell; 2) reduces demand for rented property; 3) left with undeveloped

Staff injured/killed in the course of their duties

The Group faces an inability to secure financing on attractive terms as existing funders leave the market

Budget overspends effect the delivery of the development programme

Breach of CCH transfer contract

Increase in inappropriate lettings leading to increase nuisance problems and

Failure to meet financial covenants

Inability to recruit best the staff Reduction in Supporting people

funding Board members have insufficient skills to undertake role

Government budget cuts/policy lead to reduced grant income leading to lower levels of development

New building pilot: lack of expertise and capacity

New building pilot: serious accidents

Risk that development schemes are not viable

Insufficient income from sale of uneconomic voids

Failure to achieve HCA targets

New initiatives not viable

Development contractor goes bankrupt

Competition for funds/new initiative too high

Opportunities for business growth missed due to concentration on existing projects

Property land values increase significantly

Land/property not available as anticipated

Tenant injury/death due to fire

Tenant injury/death due to gas

Poor quality of service delivered by Contact Centre

Failure of company’s IT network

Failure of public data network used by company

Unable to deliver effective co-regulation

Inaccurate performance data leads to damaging decisions being made

Failure to meet regulators requirements

Poor performance in one part of Group impairs regulators assessment of the whole Group

Material fraudulent activity takes place

Shared Owners enter into mortgage arrears resulting in increased repossessions

Statutory Housing obligations not met leading to prosecution

Cost of pension auto-enrolment

Inability to charge security for finance requirements

Immediate loss of key staff

Property becomes unpopular due to changing customer expectations

Tenant injury or death due to flood

Technical problem causes interruption to Contact centre service

9

Figure 8 confirms however that once the Group’s controls are applied to mitigate the likelihood or impact risks, the assessment of all residual risks fall within the acceptable levels defined in the Group’s Risk Management Strategy.

The Group’s risk map and the controls it has in place to mitigate risks can be explored in further detail on the Group’s website see: www.adactushousing.co.uk and search for ‘risk’.

The Group currently borrows from a variety of lenders at both fixed and floating rates of interest. The Group’s Treasury Management Policy targets the level of fixed rates of interest to be up to 100% of its loan portfolio. At year-end in excess of 90% of the Group’s borrowings were at fixed rates between 2.6% and 11.5%. (Further details on the profile of borrowings can be found at note 19 to the Financial Statements).

The Group has minimal exposure to derivative based hedging structures. All such exposures will end by 30th September 2014.

The Group’s lending agreements require compliance with a number of financial and non financial covenants. The compliance to such covenants is monitored on a monthly basis and reported to board each quarter. The Group was compliant throughout 2013/14 and remains compliant with all loan covenants.

Capital structure and treasury policy

The Group repaid £2.2m during the year in line with agreed debt repayment profiles. No loan finance was drawn-down during the year. At the year end borrowings amounted to £184m, maturing as follows:

Figure 9: Debt maturity

Between one and two years 20,267 1,552

Within one year 1,927 20,240

Between two and five years 11,822 18,353

After five years 152,413 144,084

2013 £’000

2014 £’000

186,429 184,229

Gearing has fallen to below 60% for both AHA and BHA as a result of the Group’s ability to generate cash resources from operational activities thereby restricting the need to draw-down loan facilities.

At the year end new facilities were in the process of being negotiated by AHA with two new lenders. These are expected to be completed during the next twelve months which will enable it to refinance an element of its existing debt and to continue to provide funding for its on-going development programme. An element of this new funding was secured in May 2014 under the government backed Affordable Homes Finance scheme.

In the year, CCH was successful in agreeing a further £6m of finance from its existing facility to underpin its first development programme.

• Reduced income due to changes in the government rent formula in 2015.

• Overstretched/stressed staff.

• Poor performance on the Miles Platting PFI contract.

• Inability to retain good staff.

• Reduced grant income.

• Poor contact centre service.


10

Since the year end, CCH has entered into discussions with its main lender in relation to providing future development finance.

At the year end the Group held £12.7m of cash balances (2013: £7.9m). The Group has a clear focus on cash collection and monitors cash-flow forecasts closely and regularly to ensure it has sufficient funds to meet its business objectives, pay liabilities when they fall due and ensure adequate liquidity with respect to emerging risks.

With respect to short term liquidity, the Group has access to £12.7m of cash balances and in excess of £50m of undrawn committed facilities.

The Group’s cash funds increased by £4.9m in the year (2013: reduced by £3.9m).

Statement of compliance

In preparing this Operating and Financial Review and Report of the Board, the board has followed the principles set out in the Statement of Recommended Practice: Accounting by Registered Social Housing Providers (SORP).

Future outlook

The remainder of this Operating and Financial Review sets out a comprehensive Value for Money Statement which details the Group’s existing strategy and future plans to achieve its corporate objectives.


11

Value for money (VfM) can be defined as the “optimal use of resources to achieve the intended outcomes”⁴.

For members of the Adactus Housing Group, efforts to achieve VfM are focused on curating a portfolio of productive housing assets and managing them well to deliver the following core organisational objectives:

⁴h p://www.nao.org.uk/successful‐commissioning/general‐principles/value‐for‐money/assessing‐value‐for‐money/

⁵Diagram adapted from h p://www.nao.org.uk/successful‐commissioning/general‐principles/value‐for‐money/assessing‐value‐for‐money/

Figure 10: Delivering value for money⁵

Figure 10 highlights that VfM can be thought of as an on-going process of optimising the relationship between resources and outcomes. The remainder of this VfM Statement therefore sets out a comprehensive assessment of the use and maintenance of the Group’s key resources – its housing assets – and the achievement of its intended outcomes for new housing development; tenancy services; and community investment.

• Q1. Maintain effective governance

• Q2. Provide value for money customer services

• E1. Increase the size of the business through new group members, transfer or development

• D1. Provide targeted neighbourhood investment

• D2. Reduce carbon emissions

The Group’s approach to achieving value for money is summarised in Figure 10 below.

Value for money statement

Figure 11 provides a high-level overview of how resources were used to achieve outcomes during 2013/14.


Economy

Spending less

Other influences

Objectives

Q1 maintain effective governance Q2 Provide VfM customer services E1 Increase the size of the business D1 Provide targeted neighbourhood investment D2 Reduce carbon emissions

Resources

Housing assets

Inputs

Finance / Staffing

Outputs

Services/new housing

Outcomes

New housing development. Tenancy services.

Community investment.

Efficiency

Spending well

Effectiveness

Spending wisely

Value for money

The optimal use of resources to achieve the intended outcomes key

Contributes to the measurement of….

Processes

12

13

Figure 11: Use of resources to achieve outcomes 2013/14

Figure 11 shows where the Group’s cash came from and how it was spent during the year to 31 March 2014.

The diagram illustrates that the business generated a cash surplus in the year and did not draw-down on any of its finance facilities to fund its activities.

It shows that cash spend in the year was prioritised firstly on ‘New housing development’ (47% of total spend) which includes the payment of most of the Group’s capital and interest costs of loan finance.

Following this, expenditure focused on ‘Tenancy services’ (29% of total spend) and then on ‘Housing assets’ (23% of total spend). Finally, cash spent on ‘Community investment’ comprised just under 1% of the total.

Each of these outcomes are examined in greater detail on pages 12 to 27.

In order to aid transparency and accessibility, many of the diagrams and tables presented in this statement (along with their underlying data) have been made available as interactive visualisations on the Group’s website and may be explored for further detail. Visit www.adactushousing.co.uk and search for ‘VfM’ to learn more.


In 2013/14 the Group’s members delivered 129 units of affordable housing, bringing the total number of new housing units completed to 548 in the three years to 31 March 2014 as show in Figure 12.

The Group’s provision of new housing generates wider value for society as new housing provides people with better places to live.

Figure 12: New affordable housing delivered 2011/12 - 2013/14

Figure 13: Economic impact of housing development 2011/12 ‐ 2013/14

548 +£48.5m +1,127

Homes provided Impact on local economy Jobs supported

An estimate of the impact of the Group’s development activity in recent years is shown in Figure 13 below and is clearly significant. Over 350 jobs each year are estimated to have been supported through the Group’s investment in new development since 2011.

All new housing developments are expected to provide a positive financial return, acting to strengthen the financial position of the Group’s members and helping to refresh their asset portfolios.

The economic impact of housing development can be estimated through the National Housing Federation’s CEBR database⁶.

Source: Estimates from the NHF CEBR database

⁶See: h p://www.housing.org.uk/policy/localism/local‐enterprise‐partnerships/

New housing development


14

A recent study examines the relationship between well-being and housing⁷. It suggests that the social impact of good quality housing association accommodation in terms of well-being effects alone can be valued at up to £997 per person housed per year in comparison with other rental alternatives. The social value generated from improving the lives of the 824 adults rehoused into the Group’s new developments in the period 2011-2014 is therefore estimated to be in the region of £800k per annum.

⁷The Social Impact of Housing Providers, Daniel Fujiwara, HACT, 2013

Through careful architectural design, the Group’s housing developments also contribute to improvements to the general built environment and towards efforts to reduce carbon emissions. Figure 14 presents a selection of the new housing delivered by the Group’s members in 2013/14.

Figure 14: Good design in new housing 2013/14

The Group’s strategic aim is not only to continue to develop but to accelerate its current levels of development to deliver 500 homes per annum. In the next three years, this is expected to inject an additional £130m into the north-west economy, support in excess of 1,000 jobs per annum, and provide social value to new tenants of up to £3m per annum.

Development activity is supported through cash generated from retained surpluses, from loan finance and from Homes and Communities Agency grants. The Group has worked to make the best of each of these streams:

Surplus generation The financial surplus generated by the Group’s members on their turnover from social housing activities is amongst the best in the north-west region. Figure 15 compares the Group to the latest available data for other north-west housing associations and shows that in 2012/13 it generated above-trend levels of surplus before interest costs and taxation for every pound received by the business.

Grove Farm, Adlington - completed September 2013

Strands Farm, Lancaster - completed December 2013 Beaumont Gardens, Chorley - completed January 2014

Clover Road, Chorley - completed October 2013


15

In 2013/14 the Group’s surplus before interest costs and taxation improved further, increasing to 41.7% of turnover from 37.8% the previous year and is expected to average 35.8% throughout the Group’s thirty year financial projections⁸.

Loan finance The Group remains an attractive proposition to funders. New lines of funding were secured during the year from The Housing Finance Corporation and from Santander. Further funding from Legal & General was close to being agreed by the year end.

Over 90% of debt is fixed and the Group’s weighted average cost of loan finance is 5.3%.

No loan finance was drawn-down during the year as the Group was able to finance its development commitments of £15m through retained surpluses and grant received from the Homes and Communities Agency. The Group’s members reduced their outstanding loan balances by £2.2m in the year through capital repayments.

⁸Projected SBIT is lower than current performance due to the assumed impact of welfare benefit reform.

Grant funding Successful bids for grant funding were made to the Homes and Communities Agency in 2013 and in 2014. As a result, all of the Group’s asset-owning members will be active developers in the coming years. This represents a particular milestone for Group member CCH which, having been formed in 2007 to accept and improve local authority housing stock, now moves into a mature phase as a provider of new affordable housing.

In total, the Group’s current development plans will leverage £32.8m of secured grant funding to deliver 2,010 units by 2018 as shown in Figure 16.

Figure 15: North-west housing association efficiency


Source: Global Accounts 2012/13, HCA (subsidiary performance consolidated).

16

This represents a 175% increase in annual output on the previous three year period and is expected to move the Group into the top ten of Homes and Communities Agency funded developers despite its size as only the 79th largest as measured by turnover⁹.

⁹Source: HCA Global Accounts 2012/13 subsidiary performance consolidated to Group level where applicable.

New housing development – 2013/14 value for money gains

• 129 new affordable homes provided. • Estimated 261 jobs supported through development

work. • Estimated £11.1m of value added into the local

economy. • Estimated £190k pa of social value generated for

tenants of new homes. • Invested £15m of cash resources to support new build

programme. • Leveraged grant of £4m to support development in the

year. • Reduced loan costs through refinancing. • Commenced a pilot to test the viability of creating an in

-house building arm.

Figure 16: Development plans with secured grant to 2018


17

The Group provides a range of tenancy services to the tenants and leaseholders of its member housing associations.

1,434 properties were re-let in the year. Rent lost due to empty properties was 0.8% (2013: 1.5%) due to improved re-let performance. Properties were empty for a median period of 17 days on average compared with 29 days recorded for the previous financial year.

The social value generated for tenants from new lettings in the year is estimated to be in excess of £590k.¹⁰

Tenancy services are generally accessed via the Group’s contact centre which resolves more than 75% of all enquiries ‘right first time’. Over 170,000 customer enquiries were answered in this way during 2013/14. The minority of issues that cannot be dealt with by the call centre (typically complex maintenance issues or anti-social behaviour cases) are allocated to specialist teams of staff.

This model is extremely effective with 97% of those customers surveyed in the year stating that they were satisfied with the response to their enquiry¹¹.

¹⁰See p 27 The Social Impact of Housing Providers, Daniel Fujiwara, HACT, 2013 for methodology. ¹¹Source: 7,345 replies to automated surveys undertaken throughout 2013/14.

Figure 17: Services requested

Requests for property repairs, help with rent issues, lettings and antisocial behaviour account for over eight in ten of all contacts from customers. The Group continues to place a focus on these areas to ensure that its services are effective. Figure 18 shows how the timescale for the delivery of these services has improved in recent years.

The Group’s key metric for customer satisfaction, its Net Promoter Score, increased from 43 to 45 on the previous 12 month period. This performance is comparable to some of the nation’s most well-known and respected brands.

Figure 17 sets out an analysis of the services requested by customers.

Repairs 46%

Lettings 11%

Other 13%

Payment/payment issues 24%

Tenancy management

3% Estate

management 5%

Tenancy services


18

Figure 18: Service delivery

Taken together, the annual cost of tenancy services is £59 per unit less than the median costs of other north-west housing organisations.

The main weakness in this area is the higher than median cost of the lettings service. A closer analysis of costs in this area reveals that the Group has typical ‘direct’ (i.e. staffing) costs, but relatively high ‘indirect’ costs.

The speed of delivery of the anti-social behaviour and lettings services has improved markedly since the Group introduced dedicated teams to solely concentrate on these areas in 2011.

The Group’s service delivery model is also economic. Figure 19 shows the latest available data on how the Group’s costs for tenancy services compare with 50 other north-west housing organisations.

Figure 19: Benchmarking tenancy management costs

The indirect costs are associated with the payment of fees to a number of local authority sponsored choice-based lettings schemes which the Group has contractual obligations to support.


Source: Housemark, peer group of 50 north-west housing organisations, 2012/13 data

19

The key value for money trade-offs that can be made by the Group with regard to the provision of tenancy services are strategic decisions relating to whether services are provided in-house or are out-sourced.

The Group’s medium-term strategy is to maintain and develop its in-house call centre based model for service provision providing that value for money continues to be demonstrated. The Group plans to supplement this service with further development of its range of customer self-service options which will be introduced in 2014/15.

Conversely, the Group’s costs for rent arrears & collection and for resident involvement services are relatively low. The Group has invested in technological innovations in both of these areas in recent years to improve the VfM of service provision:

• The adoption of software which analyses payment patterns to calculate the amount of rent arrears owed by tenants themselves rather than from Housing Benefit. This has improved the prioritisation of income recovery efforts.

Figure 20: Rent arrears

Tenancy services – 2013/14 value for money gains

• 1,434 lettings were made providing social value of over £590k.

• Reduction in re-let time and void loss increasing income by £296k.

• Automated income recovery processes to court stage.

• 50% reduction in income recovery staff saving £170k per annum.

• £356k additional income received through affordable rents.

• Improved options for customer self-service launched.

• The creation of a web-based tenant consultation system to engage with greater numbers of tenants. This has resulted in better and more timely customer intelligence than previously gained through traditional methods of tenant involvement which focused heavily on meetings.

Further innovations were made in 2013/14 with the Group partnering with a new supplier to the sector to automate all of its early-stage income recovery processes. This has led to a 50% reduction in the staffing of this service whilst working to limit the impact of the government’s welfare benefit reforms as shown in Figure 20.


20

Introduction of automated arrears process

100k

200k

300k

400k

600

500

700

800k

900k

1000k

1100k

0k

1200k

Rent

Arr

ears

(£)

Introduction of under occupation Welfare reform

BHA

CCH

AHA

March 2013 June 2013 September 2013 December 2013 March 2014

The Group’s housing assets provide the financial platform for the delivery of its social objectives.

The Group’s members own and manage 13,043 properties which generated an income of £54.6m¹² against costs of management, maintenance and investment of £34.6m¹³ in 2013/14. In total, the Group’s members have c£250m of capital deployed in their housing assets¹⁴ which are expected to generate an average annual return of 8.7% over the next thirty years¹⁵. This return is comfortably above the Group’s weighted average cost of loan finance of 5.3%, demonstrating that the asset portfolio as a whole generates a worthwhile financial investment.

Figure 21: Financial return of housing assets 2013/14

Figure 21 shows that the overall return on capital employed¹⁶ of 9.0% out-performs the sector average of 5.3% recorded for 2012/13¹⁷. It also indicates that return on capital employed is higher for those Group members with proportionally more general needs housing within their stock holdings.

The Group’s better than average return on assets is explained by its better than average operating costs. Low costs are partly the result of the Group’s delivery model for tenancy services (see above) but in the main result from

an economic approach to asset management. Figure 22 shows how the Group’s asset management costs compare with other north-west housing associations.

Figure 21 summarises the return on capital employed generated by the Group’s housing asset portfolio in the year to 31 March 2014.

Housing assets

¹² Net rent receivable and management income, note 3 to the Financial Statements. ¹³ Total expenditure on social housing le ngs and housing management contracts, note 3 to the Financial Statements. ¹⁴ Net of grant received, note 13 to the Financial Statements. ¹⁵Internal Rate of Return before interest costs. ¹⁶ ROCE calculated as opera ng surplus divided by net book value of housing proper es. ¹⁷ Source: Global Accounts 2012/13, Homes and Communi es Agency (the Group’s equivalent figure for 2012/13 was 8.2%).


Source for National average: Global Accounts 2012/13, HCA

21

It also allows major maintenance spend to be targeted to individual properties as-and-when needed which is more difficult to achieve through externally procured contracts that tend to package works together on an area-wide basis. Typically, the Group undertakes major maintenance work in empty properties before new tenancies commence.

Of course, investment in improving housing assets remains a relatively high-spend area for the Group with £9m¹⁸ invested during 2013/14. Investment principally took the form of decoration to improve the attractiveness of housing available for let and also the upgrade of property components in order to maintain compliance with regulatory and statutory requirements as shown in Figure 23.

¹⁸Source: Expenditure on work to exis ng proper es, note 13 to Financial Statements

Figure 22: Benchmarking the cost of asset management

In comparison with other north-west based housing associations, Figure 22 demonstrates that the Group’s costs per unit for asset management are below median levels overall and are far below median levels for major works and cyclical maintenance. Taken together, the Group’s costs for asset management are within the top ten percent of its peer group and £835 per unit lower than the median costs of other north-west housing organisations.

Costs are low primarily because the Group’s maintenance services are almost entirely provided in-house. In-house provision enables the Group to save the profit and VAT elements that would otherwise be paid through external procurement (amounting to an estimated 8% saving on VAT alone).

Figure 23: Asset component investment 2013/14

External decoration 1,308 properties

Rooflines 400 properties

Internal decoration

311 properties Windows

221 properties

Heating systems

383 properties

Kitchens 191

properties

Roofs 141

properties

Fires 201

properties

Insulation 204

properties

Bathrooms 113

properties


Source: Housemark, peer group of 50 north-west housing organisations, 2012/13 data

22

¹⁹Source: ‘Surplus on sale of fixed assets’, note 6 to the Financial Statements

Figure 24: Wider asset investment 2013/14

This investment included £1.2m undertaken in the year to ensure that housing assets continue to meet the changing expectations of customers and remain in demand and productive. Investment focused on improving the street-scape of three estates with work to improve fencing,

external cladding and off-street parking; the modernisation of six retirement living schemes; and energy efficiency improvements part-funded by the ECO Homes programme. Figure 24 presents a selection of the improvements made.

Sherdley Court refurbishments, Manchester Ivy Court refurbishments, Manchester

Harestone Avenue estate improvements, Chorley Hibiscus Court refurbishments, Manchester

This strategy has resulted in an active programme of stock disposals undertaken with the consent of local authority partners. Disposals during the year generated a surplus of £2.5m¹⁹ and included the sale of 66 properties to other housing associations and 47 properties to other buyers as shown in Figure 25.

Data is used to drive decisions about stock investment, disposal or retention. The Group’s strategy is to retain financially ‘unproductive’ housing only in cases where the strategic or social value of retaining those assets is judged to outweigh the financial cost to the business.


23

Figure 25: Stock disposals 2013/14

The most significant area of disinvestment in the year was in Lower Openshaw, Manchester where Group member, Adactus Housing Association, sold 60 terraced houses to another housing association.

Adactus Housing Association has future plans to dispose of approximately 50 units per annum. Capital receipts will be used in support of its housing development programmes.

Housing assets – 2013/14 value for money gains

• Growth in asset base value of £11m.

• Estimated savings of £1.2m through in-house delivery of asset management services.

• Modernisation of six retirement living schemes at a cost of £614k.

• Street-scape improvements to six estate areas at a cost of £578k.

• Leveraged £360k of ECO funding for energy improvement works.

• Disposal of 113 uneconomic properties generating a capital receipt of £6.6m.

• Commenced £2.8m project to extend head office.


24

²⁰Title: Community investment values from the Social Value Bank, Authors: HACT and Daniel Fujiwara (www.hact.org.uk / www.simetrica.co.uk), Source: www.socialvaluebank.org, License: Crea ve Commons A ribu on‐NonCommercial‐NoDeriva ves license (h p://crea vecommons.org/licenses/by‐nc‐nd/4.0/deed.en_GB)

Figure 26: Top ten community investment projects 2013/14

One Community One Goal £1.8m 451 under-25 year-old participants in football

Project Estimated social value Key outcomes

Miles Platting Jobs Club £1.3m 12 participants found jobs, and 114 participants improved their confidence

Work placements £446k 12 participants found jobs and 44 participants improved their confidence

Tenant participation £326k 77 people active in tenants groups

Multi Ability Arts Dance and Drama £160k 60 participants in dance project

Health and wellbeing days £148k Helped 80 people keep fit

Wednesday Walkers £101k 23 participants in walking

Career guidance £142k 4 participants found jobs and 13 im-proved their confidence

The Lesbian and Gay Foundation £72k 48 participants in a regular social club

Moss Side Community Allotment £71k 60 participants in gardening

Source for social value estimates: Social Value Bank, HACT The top ten projects generated an estimated £4.6m of social value in the year.

In 2013/14 the Group’s members expended £436k on initiatives to improve the quality of life of tenants.

The social impact of the Group’s community investment activities has been estimated through the Social Value Bank maintained by HACT²⁰. This work indicates that every £1 invested by the Group in community investment activities generates a much greater return for society.

Figure 26 provides a summary of the projects funded in 2013/14 that delivered the highest social value.

Community investment


25

Examples on some of the initiatives supported in 2013/14 are provided in Figure 28.

The Group’s flagship initiative in this area is the Neighbourhood Fund – a tenant controlled vehicle for providing financial support to community projects.

Figure 27: Neighbourhood Fund investment 2013/14

Figure 28: Example Neighbourhood Fund projects

School children plant a tree at Monsall road housing development

Green and Tidy Weaverham Sports Academy

Health and wellbeing days Miles Platting Job Club MADD - The arts partnership

One Community One Goal

In 2013/14 236 projects were supported benefiting people throughout the north-west as shown in Figure 27.


Chorley Moor Fun Day

26

£0 £20,000 £40,000 £60,000 £80,000 £100,000 £120,000 £140,000 £160,000 £180,000 £200,000

Good Neighbour Competition Enterprise Fund

Skip Days

Community House

Green Grants

Partnership Leverage

Employment and Skills Wigan Youth Zone

Tenant Welfare Fund

Environmental Improvements

Supported Employment programme

Garden Competition

Chorley Hit Squad Neighbourhood Fund

The Group’s strategic aim is to invest £900,000 in community projects during the three years to 2017. Figure 29 shows the investment planned for 2014/15 and includes new programmes to help fund the recently established

Figure 29: 2014/15 planned community investment

Community investment – 2013/14 value for money gains

• 236 community projects supported through £194k Neighbourhood Fund spend.

• Top ten projects generated £4.6m of social value.

• 26 people helped into full-time employment.

• 6 people helped into part-time employment.

• 4 people helped into self-employment.

• 7 people helped into full-time education or training.

Wigan Youth Zone and also to increase the number of disabled people in employment with the Group through the Supported Employment Programme.


27

The board is pleased to present its report together with the audited Financial Statements of Adactus Housing Group Limited (the Association) for the year ended 31 March 2014. The Association is a member of the Adactus Group Structure (the Group), of which Adactus Housing Group Limited is the parent company.

Principal activities, business review and future developments

Details of the Group’s principal activities, its performance during the year and factors likely to affect its future development are contained within the Operating and Financial Review which precedes this report.

Board members and executive directors

The present board members and those who served throughout the year and executive directors of the Group are set out on page 1.

The executive directors are the group chief executive and group directors highlighted on page 1. The senior management team remains unchanged during the year. They hold no interest in the Association's shares and act as executives within the authority delegated by the board.

Group insurance policies indemnify board members and officers against liability when acting for the Group and Association.

Service contracts

The group chief executive is appointed on an employment contract with 12 months notice and the group directors on an employment contract with six months notice.

Pensions

During the year, all of the executive directors were members of the Social Housing Pension Scheme, a defined benefit (final salary) pension scheme. They participated in the scheme on the same terms as other eligible staff and each relevant association within the Group contributed to the scheme on behalf of its employees.

Other benefits

The executive directors are entitled to other benefits such as the provision of a car (or car allowance) and health care insurance.

Employees

The Group recognizes that the success of the business depends on the quality of its managers and staff. It is the policy of the Group and Association that training, career development and promotion opportunities should be available to all employees.

The Group is committed to equal opportunities. Of particular note is its support of disabled people, both in terms of recruitment and also retention of employees who become disabled whilst employed by the Group.

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.

Donations

During the year, the Group made no political donations. Any charitable contributions are made within the Group's normal activities.

Financial risk management objectives and policies

The Group uses various financial instruments including loans and cash and other items such as rent arrears and trade creditors that derive directly from its operations. The main purpose of these financial instruments is to raise finance for the delivery of the Group’s objectives.

The existence of these financial instruments exposes the Group to a number of financial risks. The main risks arising from the Group’s financial instruments are considered by board to be interest rate risk, liquidity risk and credit risk. The board as part of the overall Risk Management Strategy and Treasury Management Strategy reviews and agrees policies for managing each of these risks as summarised below.

Interest rate risk

The Group finances its operations through a mixture of retained surpluses and bank borrowings. The Group’s exposure to interest rate fluctuations on its borrowings is managed by the use of both fixed and variable rate facilities.

Liquidity risk

The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and invest cash assets safely and wisely.


Report of the board

3

28

Credit risk

The Group’s principal credit risk relates to tenant rent arrears. This risk is managed by robust recovery procedures, providing support to existing tenants where necessary and the pre-let screening of applicants for tenancies. The Group’s financial inclusion service provides the necessary support to tenants and the Group’s arrears recovery team closely monitors tenant arrears as a whole. The implementation of an automated arrears recovery process ensures that arrears levels are minimized reducing the credit risk.

The impending introduction of Universal Credit has been identified as a key risk to the Group and therefore the Group has made a prudent assumption in relation to bad debts in its financial plan and forward budget, to ensure the impact of this risk is more than covered by the financial results of the organization as a whole.

Going Concern

The board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of twelve months after the date on which the report and Financial Statements are signed. The annual update of the financial and business plan coupled with the available loan facilities in place gives the board reasonable assurance to continue to adopt the going concern basis in the Financial Statements.

Internal Controls Assurance

The board acknowledges its overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness.

The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and to provide reasonable assurance against material misstatement or loss.

The process for identifying, evaluating and managing the significant risks faced by the Association is on-going and has been in place throughout the period commencing 1 April 2013 up to the date of approval of the report and Financial Statements.

Key elements of the control framework include:

• Formal policies and procedures are in place, including the documentation of key processes and rules for the delegation of authorities. These policies and procedures are reviewed on an agreed cycle.

• Experienced and suitably qualified staff are responsible for important business functions.

• A performance management framework is in place to provide monitoring information to the board and management. Employee progress against agreed, documented objectives is formally reviewed. Management report regularly on their on-going review of risks and how these are managed.

• Forecasts and budgets are prepared which allow the board and management to monitor financial objectives and risks. Monthly management accounts are prepared promptly with significant variances from budget investigated and accounted for. This reporting includes the monitoring of all loan covenants.

• All significant new initiatives and projects are subject to formal appraisal and authorization procedures by the appropriate board.

• An internal audit service is provided by the Group incorporating a team managed by a qualified, full-time employed audit manager. The audit committee approves the audit programme and reviews internal audit reports, reports from management and third-party reviews including reports from tenant scrutiny.

• The audit committee makes quarterly reports to the board and reviews the assurance procedures, ensuring that an appropriate range of techniques are used to obtain the level of assurance required by the board.

• The audit committee reviews and approves this statement of the Group and Association's internal controls assurance.

• Risks are identified, assessed and documented in a risk register with details of how each risk will be managed. The risk register is completed with the approval of the board. Internal audit independently reviews the risk identification procedures and control process implemented by management and reports to the audit committee.

• The group chief executive also reports to the board on behalf of the senior management team on significant changes in the business and external environment which affect significant risks.

• The board receives quarterly information on the financial performance together with a summary of key performance indicators covering the main business risks.

• A fraud register is maintained by the group company secretary and all significant frauds are reported to the audit committee. No significant frauds were reported during 2013/14.

Adactus Housing Group has two unregulated subsidiaries, which traded in the year, Palatine Contracts Limited and Acuna Limited. Although not registered providers and not regulated by the Homes and Communities Agency they are both managed and monitored under the same internal control framework as outlined above, specifically:


29

• Directors of the boards include current board members of Adactus Housing Group.

• The Group’s standard policies/procedures and financial regulations have been adopted into all unregulated subsidiaries.

• All unregulated subsidiaries are subject to the same financial and internal control scrutiny by both the Group’s internal and external audit functions.

• The Group’s audit committee carries out an annual scrutiny of the unregulated subsidiaries Financial Statements.

• There is no detrimental financial risk to the Group should these two unregulated subsidiaries cease operations at any point as the assets exceed the likely debt.

NHF Code of Governance

The Group complies with the NHF Code of Governance.

Statement of responsibilities of the board for the report and Financial Statements

The board is responsible for preparing the board's Report and Financial Statements in accordance with applicable law and regulations.

The Co-operative and Community Benefit Societies Act 2014 requires the board to prepare financial statements for each financial year. Under that law the board have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under the Co-operative and Community Benefit Societies Act 2014 the board must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs and surplus or deficit of the Association and Group for that period.

In preparing these Financial Statements, the board is required to:

• Select suitable accounting policies and then apply them consistently.

• Make judgments and accounting estimates that are reasonable and prudent.

• State whether applicable UK Accounting Standards and the Statement of Recommended Practice: Accounting by Registered Housing Providers Update 2010 (SORP), have been followed, subject to any material departures disclosed and explained in the Financial Statements.

• Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Association will continue in business.

The board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Association and enable it to ensure that the Financial Statements comply with the Co-operative and Community Benefit Societies Act 2014, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2012.

It is 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 the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

In so far as each of the board members are aware:

• There is no relevant information needed by the Association's auditors in connection with preparing their report of which the Association’s auditors are unaware.

• The board members have taken all the steps that they ought to have taken to make themselves aware of any relevant information and to establish that the Association’s auditors are aware of that information.

External auditors

In line with the Group’s financial regulations, the provision of audit services was tendered during the summer of 2014. KPMG LLP were successful in this tender process. Therefore in accordance with the Co-operative and Community Benefit Societies Act 2014, a resolution to appoint KPMG LLP as external auditors will be proposed at the annual general meeting.

AGM

The annual general meeting will be held on 22nd September 2014 at Turner House, 56 King Street, Leigh WN7 4LJ.

Approved by the board on 22nd September 2014:

Signed on their behalf by:

Alan Cain

Chair


30

Independent auditor's report to the members of the Adactus Housing Group Limited We have audited the Financial Statements of Adactus Housing Group Limited for the year ended 31 March 2014 which comprise Group and Association income and expenditure accounts, the Group and Association statements of total recognised surpluses and deficits, the Group and Association reconciliation of movement in funds, the Group and Association balance sheets 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 regulations made under sections 87 and 98(7) of the Co-operative and Community Benefit Societies Act 2014. 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's responsibilities as set out on page 30, the board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the Financial Statements:

give a true and fair view of the state of the Group and Association's affairs as at 31 March 2014 and of the Group and Association’s income and expenditure for the year then ended;

have been properly prepared in accordance with the Co-operative and Community Benefit Societies Act 2014, the Housing and Regeneration Act 2008, and the Accounting Direction for Private Registered Providers of Social Housing 2012.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Co-operative and Community Benefit Societies Act 2014 requires us to report to you if, in our opinion:

a satisfactory system of control over transactions has not been maintained; or

the Association has not kept proper accounting records;

the Financial Statements are not in agreement with the books of account; or

we have not received all the information and explanations we need for our audit.

Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Manchester


4

31

5

All amounts relate to continuing activities.


A Cain: Chair

P Lees: Executive member B Moran: Secretary

Financial statements Group income and expenditure account

Surplus for the year after reserve transfers

Turnover group and share of joint venture Less: share of joint venture's turnover

Note 2014 £’000

2013 £’000

Total operating surplus

Surplus on sale of fixed assets

Interest receivable and other income Share of joint venture interest receivable

Interest payable and similar charges Share of joint venture interest payable

3

3 3

Group operating surplus

Share of operating profit in joint venture

3,9

Group turnover

Cost of sales Operating costs

Surplus on ordinary activities before taxation

Taxation on surplus on ordinary activities Share of joint venture taxation

Surplus on ordinary activities after taxation

Transfer from designated reserves Transfer from restricted reserves

6

7

8

12

22 22

55,793

(621) (34,894)

20,278

536

20,814

2,458

169 1,264

(9,857) (1,600)

13 46

58,521 (2,728)

56,916 (3,625)

53,291

(1,644)(33,824)

17,823

935

18,758

1,383

130 1,307

(9,866) (1,692)

13,248

(3) (45)

10,020

36 (130)

4 6

13,259 9,936

13,200 9,926

The accompanying notes form part of these Financial Statements

The Financial Statements were approved by the board on 22nd September 2014 and signed on its behalf by:

32


Association income and expenditure account

Turnover

2014 £’000

Deficit on ordinary activities before taxation

Taxation

(Deficit)/surplus for the year

Total operating deficit

Interest receivable

Operating Costs

Staff costs Administration costs

(12,054) (8,969)

(13)

2

(11)

(3)

(14)

21,010

(16)

-

2013 £’000

20,469

(21,023)

(11,652) (8,833)

(20,485)

(16)

27

11

All amounts relate to continuing activities.


A Cain: Chair

P Lees: Executive member B Moran: Secretary 33

Note

12



Surplus/(deficit) for the year

Group £’000 £’000 2014 2013

9,926

Association £’000 £’000 2014 2013

11

Reconciliation of movements in Group’s and Association’s funds

Actuarial losses on pension schemes

Unrealised loss on re-valuation of investment properties

Total recognised surpluses/(deficits) relating to the year

13,200 (14)

(895) - (614) -

(15) - - -

9,016 11 12,586 (14)

Opening funds

Group £’000 £’000 2014 2013

30,344

Association £’000 £’000 2014 2013

(1)

Total recognised surpluses/(deficits) relating to the year

Closing funds/(deficits)

39,360 10

9,016 11 12,586 (14)

39,360 10 51,946 (4)

34


Group balance sheet

Note 2014 £’000

2013 £’000

Current assets Properties for sale Debtors: amounts falling due within one year Cash at bank and short term deposits

Other tangible fixed assets


Fixed assets Housing properties at cost Social housing and other grants Depreciation and impairment

8,325

Investment in joint venture Share of gross assets Share of gross liabilities

16 17

3,024 4,246

12,690

2,779 4,471 7,876

15 15

24,047

(24,024)

14

489,189

(241,102) (25,672)

478,304

(238,506) (23,089)

Net current liabilities


Creditors: Amounts falling due after more than one year

Pension liability

Capital and reserves Called up share capital Designated reserves Restricted reserves Revaluation reserves Revenue reserves

18 (32,342) (14,413)

(12,382) 713

218,381 225,794

18 164,671 185,267

27 1,764 1,167

21 22 22 22 22

-

3,171 870

- 47,905

-

3,184 916

6 35,254

25,394

(24,920)

7,898

222,415 13 216,709

230,740 224,607

230,763 225,081

19,960 15,126

218,381 225,794

Consolidated funds 51,946 39,360


A Cain: Chair



35


Association balance sheet

Note

2014 £’000

2013 £’000

Restated


Current assets Debtors Cash at bank and short term deposits

(1,712) 18

17

580

1,128

305

1,174

Net current assets


Capital and reserves Called up share capital Revenue reserves

(4) 10

(4) 10

-

(4)

-

10

(1,469)

1,708 1,479


Association's funds (4) 10

(4) 10

A Cain: Chair



36


Group cash-flow statement

Net cash inflow from operating activities

2014 £’000 £’000

25,644

2013 £’000 £’000

22,581

Returns on investments and servicing of finance

Interest received

Net cash outflow from returns on investments and servicing of finance

Note

24a

Interest paid 87

(9,912) 71

(9,853)

(9,782) (9,825)

Taxation

Corporation tax paid Corporation tax refunded

(3) -

9 -

Capital expenditure and financial investments

Cash paid for construction and purchase of housing properties

SHG received

(16,782)

3,912

(16,241)

4,014

Proceeds on sales of housing properties Cash paid for other fixed assets

5,326 (1,633)

3,767 (2,788)

Proceeds on sales of other fixed assets 409 89

Cash inflow before management of liquid resources and financing

(11,159) (8,768)

(1,649) 7,048

Financing

Loans received Loans repaid

- (2,234)

1,491 (7,136)

Increase/(decrease) in cash and investments (3,996) 4,814 24c

(5,645) (2,234)

9 (3)


37


1. Legal status

The Group is registered under the Co-operative and Community Benefit Societies Act 2014 and is registered with the Homes and Communities Agency as a housing provider.

2. Principal accounting policies Basis of accounting

The Financial Statements of the Group are prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP) and the Statement of Recommended Practice: Accounting by Registered Social Housing Providers 2010, and comply with the Accounting Direction for Private Registered Providers of Social Housing 2012.

Going concern

The Group’s business activities, its current financial position and factors likely to affect its future development are set out within the Operating and Financial Review. The Group has in place long-term debt facilities which provide adequate resources to finance committed reinvestment and development programmes, along with the Group’s day to day operations. The Group also has a long-term business plan which shows that it is able to service these debt facilities whilst continuing to comply with lenders’ covenants.

On this basis, the board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of twelve months after the date on which the report and Financial Statements are signed. For this reason, it continues to adopt the going concern basis in the Financial Statements.

Basis of consolidation

The Group Financial Statements consolidate the accounts of the Association and its subsidiaries as at 31 March using merger accounting.

Joint Venture Accounting

At 31 March 2014, Adactus Housing Association had an investment in a joint venture. On consolidation this has been accounted for under the Gross Equity Method of Accounting for Joint Ventures in accordance with FRS 9.

Turnover and revenue recognition

Turnover comprises rental income receivable in the year, income from shared ownership first tranche sales, sales of

properties built for sale and other services at the invoiced value (excluding VAT) of goods and services supplied in the year and revenue grants receivable in the year.

Rental income is recognised from the point when properties under development reach practical completion or otherwise become available for letting. Income from first tranche sales and sales of properties built for sale is recognised at the point of legal completion of the sale. Revenue grants are receivable when the conditions for receipt of grant funding have been met. Charges for support services are recognised as they fall due under the contractual arrangements with administering authorities.

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 FRS19, deferred tax is not provided for gains on the sale of non-monetary assets, if the taxable gain will probably be rolled over.

Deferred tax is measured at the tax rates which 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 charges Value Added Tax (VAT) on some of its income and is able to recover part of the VAT it incurs on expenditure. The Financial Statements include VAT to the extent that it is suffered by the Group and not recoverable from HM Revenue and Customs.

Interest payable

Interest is capitalised on borrowings to finance developments to the extent that it accrues in respect of the period of development if it represents either

• interest on borrowings specifically financing the development programme after deduction of interest receivable on social housing grant (SHG) in advance; or

• interest on borrowings as a whole after deduction of interest on SHG in advance to the extent that they can be deemed to be financing the development programme.


38


Other interest payable is charged to the income and expenditure account in the year.

Derivatives

The Group has used interest rate swaps to reduce its exposure to future increases in the interest rates on floating rate loans. The notional principal is not reflected in the Group’s balance sheet. Payments made under swaps are accrued over the payment period on a straight-line basis and adjusted against interest payable on the loans.

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.

Works to existing properties which replace a component that has been treated separately for depreciation purposes, along with those works that result in an increase in net rental income over the lives of the properties, thereby enhancing the economic benefits of the assets, are capitalised as improvements.

Shared ownership properties are split proportionally between current and fixed assets based on the element relating to expected first tranche sales. The first tranche proportion is classed as a current asset and related sales proceeds included in turnover and the remaining element is classed as a fixed asset and included in housing properties at cost, less any provisions needed for depreciation or impairment.

Donated land

Land donated by local authorities and others is added to the cost at market value of the land at the time of the donation. Where the land is not related to a specific development and is donated by a public body and amount equivalent to the increase in value between market value and cost is added to other grants. Where the donation is from a non public source, the value of the donation is included as income.

Social housing grant

Social Housing Grant (SHG) is receivable from the Homes and Communities Agency (the HCA) and formerly from the Housing Corporation and is utilised to reduce the capital costs of housing properties. SHG due from the HCA or received in advance is included as a current asset or 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 HCA. SHG released on disposal may be repayable but is normally available to be recycled and is credited to a Recycled Capital Grant Fund and included in the balance sheet.

Other grants

Other grants are receivable from local authorities and other organisations. Capital grants are utilised to reduce the capital costs of housing properties. 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

The Group separately identifies the major components which comprise its housing properties, and charges depreciation, so as to write-down the cost of each components to its estimated residual value, on a straight line basis, over its useful economic life.

Major components are treated as separable assets and depreciated over their expected useful economic lives or the lives of the structure to which they relate, if shorter. The following useful lives have been applied to the Group's components:

Structure 100 years

Roofs 80 years

Kitchens 20 years

Doors 30 years

Windows 30 years

Lifts 25 years

Boilers 15 years

Bathrooms 30 years

Freehold land is not depreciated.

Impairment

Housing properties, including those with individual components, which are depreciated over a period in excess of 50 years are subject to impairment reviews annually. Other assets are reviewed for impairment if there is an indication that impairment may have incurred.

Where there is evidence of impairment, fixed assets are written down to their recoverable amount being the higher of net realisable value or the value in use to the Group. Any such write down is charged to the income and expenditure account.


39


Other tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation. Freehold land is not depreciated. Depreciation is charged on a straight-line basis over the expected useful economic lives of the assets at the following rates: -

Land and buildings 3.33% per annum on cost or the length of the lease

Furniture, fixtures 10% per annum on cost and fittings

Office & computer 25% per annum on cost equipment

Motor vehicles 25% per annum on cost

Investment properties

In accordance with SSAP19 investment properties held for long term investment are re-valued annually at open market value as at the balance sheet date.

The aggregate surplus or deficit arising on re-valuation is transferred to the re-valuation reserve except where a deficit is deemed to represent a permanent diminution in value, in which case it is charged to the income and expenditure account. No depreciation is charged in respect of investment properties.

Properties for sale

Shared ownership first tranche sales, completed properties for outright sale and property under construction are valued at the lower of cost and net realisable value. Costs comprise materials, direct labour and direct development overheads. Net realisable value is based on estimated sales price after allowing for all further costs of completion and disposal.

Leased assets

Rentals payable under operating leases are charged to the income and expenditure account on a straight line basis over the life of the lease term.

Current asset investments

Investments are stated at market value. Changes in market value are taken to the re-valuation reserve.

Liquid resources

Liquid resources are readily disposable current asset investments. They include some money market deposits, held for more than 24 hours, that can only be withdrawn without penalty on maturity or by giving notice of more than one working day.

Restricted reserves

The Group has a restricted reserve (ie for a specific purpose) for major repairs to supported housing properties.

Designated reserves

The Group has designated reserves (ie reserves earmarked for a particular purpose) for the provision of furniture and equipment, tenants’ welfare, and planned maintenance.

Pension costs

The Group participates in three funded multi-employer defined benefit schemes: the Social Housing Pension Scheme (SHPS), Greater Manchester Pension Schemes (GMPF) and Lancashire County Pension Fund (LCPF).

For SHPS, it has not been possible to identify the share of the underlying asset and liabilities belonging to the individual participating employers. The income and expenditure charge represents the employer contribution payable to the scheme for the accounting period.

For the GMPF and LCPF schemes, assets are measured at fair values. Scheme liabilities are measured on an actuarial basis using the projected unit method and are discounted at appropriate high quality corporate bond rates. The net surplus or deficit adjusted for deferred tax, is presented separately from other net assets on the balance sheet. A net surplus is recognised only to the extent that it is recoverable by the Group.

The current service cost and costs from settlements and curtailments are charged against operating surpluses. Past service costs are spread over the period until the benefit increases vest. Interest on the scheme liabilities and the expected return on scheme assets are included net in other finance costs. Actuarial gains and losses are reported in the statement of total recognised gains and losses.

The defined benefit schemes were closed to new entrants on 31st December 2009, and from that date the Group operates a defined contribution scheme managed by the Social Housing Pension Scheme (SHPS).


40


3. Particulars of turnover, operating costs and operating surplus

Group 2014


Cost of sales £’000

Operating surplus £’000

First tranche shared ownership sales

Community and regeneration initiatives

Other

Total

Social housing lettings

Other social housing activities:

Supporting people

Housing management contracts

Operating costs £’000

Turnover £’000

Note

4

674

-

405

55,793

48,355

127

6,232

(621)

-

-

(621)

-

-

-

-

(11)

(187)

(34,894)

(29,845)

(79)

(4,772)

53

(11)

218

20,278

18,510

48

1,460

Cost of sales £’000

Operating surplus £’000

First tranche shared ownership sales

Community and regeneration initiatives

Other

Total

Social housing lettings

Other social housing activities:

Supporting people

Housing management contracts

Operating costs £’000

Turnover £’000

Note

4

1,407

-

255

53,291

45,330

127

6,172

(1,644)

-

-

(1,644)

-

-

-

-

(46)

(148)

(33,824)

(28,996)

(95)

(4,539)

(237)

(46)

107

17,823

16,334

32

1,633

Group 2013

The Association’s income relates to the recharge of services provided to its subsidiaries only, and is classified as other social housing activity.

41


4. Income and expenditure from social housing lettings (Group)


Low cost home

ownership £’000

Total 2013 £’000

Total 2014 £’000

Supported housing

& housing for older people £’000

General needs £’000

Rent losses from voids

Routine maintenance

Planned maintenance

Major repairs

Net rents receivable

Turnover from social housing lettings

Management

Services

Charges for support services

Rents

Service charges

Property asset depreciation

Impairment of other current assets

Other costs

Bad debts

Property lease charges

Operating costs on social housing lettings

Operating surplus on social housing lettings

5,112

5,589

708

35,930

35,930

5,156

1,736

188

34,167

1,575

2,969

-

980

445

353

23,048

12,882

257

662

363

25

10,394

10,394

766

3,290

1,115

6,737

2,542

556

-

-

66

-

5,728

4,666

69

97

175

11

2,031

2,031

377

318

-

1,748

283

98

-

(17)

10

-

1,069

962

36

5,871

6,127

744

48,355

48,355

6,299

5,344

1,303

42,652

4,400

3,623

-

963

521

353

29,845

18,510

363

6,383

4,105

2,214

45,330

45,330

6,292

5,422

1,501

39,836

3,993

3,590

110

222

269

389

28,996

16,334

659

42


5. Accommodation in ownership and management

Group

At the end of the year, accommodation in ownership and management for each class of accommodation was as follows:


2013 No.

Supported

Shared ownership

Total owned

Total owned and managed

General needs

Sheltered

2014 No.

458

623

11,379

13,043

8,693

1,605

458

449

11,327

13,013

8,316

2,104

Accommodation managed but owned by others 1,664 1,686

Association

The Association had no units in management (2013: nil).

6. Surplus on sale of fixed assets (Group)

2013 £’000

Capital grant recycled

Capital grant written off

Proceeds

Carrying value

2014 £’000

(10)

58

6,642

(4,232)

(72)

-

3,961

(2,506)

2,458 1,383

43



7. Interest receivable and other income (Group)

2013 £’000

Bank interest receivable

Other finance income (see note 27)

2014 £’000

87

82

71

59

169 130

8. Interest payable and similar charges (Group)

2013 £’000

Loans and bank overdrafts

Notional interest on RCGF/ DPF (note 20)

2014 £’000

10,050

11

10,016

17

9,857 9,866

Interest payable capitalised on housing properties under construction (204) (167)

The weighted average interest rate on borrowings of 5.30% (2013: 4.6%) was used for calculating capitalised interest.

44



9. Surplus on ordinary activities before taxation (Group)

2013 £’000

Is stated after charging:

Depreciation on housing properties

2014 £’000

3,623

3,588

Depreciation on other tangible fixed assets

Impairment of properties held for sale

796

-

689

110

Operating leases

land and buildings

other

342

642

366

643

Auditor’s remuneration for:

audit services

44

43

non audit services 24 32

10. Directors’ emoluments Executive directors

The remuneration paid to the group chief executive and directors within the Group was:

2013 £’000

Emoluments (including pension contributions and benefits in kind)

2014 £’000

552 496

Emoluments (excluding employers pension contributions) paid to: The highest paid: group chief executive 146 133

45

restated



The full time equivalent number of staff who received emoluments:

2013 No.

£60,001 to £80,000

£80,001 to £100,000

2014 No.

4

3

4

5

£100,001 to £120,000

£120,001 to £140,000

3

2

1

2

£140,001 to £160,000 - 1

£161,001 to £180,000 1 -

At 31 March 2014, the group chief executive was a member of the Social Housing Pension Scheme. He was an ordinary member of the pension scheme and no enhanced or special terms applied. The Association does not make any further contribution to an individual pension arrangement for the group chief executive. The emoluments of the highest paid director, the group chief executive, excluding pension contributions, were £146,439 (2013: £133,051).

Non-executive directors

Board members of the Association and its subsidiaries received emoluments of £44,769 (2013: Nil) and £1,378 (2013: £2,215) in expenses in the year.

11. Employee information

Average monthly number of employees expressed as full time equivalents.

Employee numbers:

Administration

143

147

Development

Housing, support and care

12

233

12

368

388 527

160

162

14

221

14

346

395 522

2014 2013

Association No.

Group No.

Association No.

Restated

Group No.

Restated

46



Employee cost for the above numbers

Employee costs:

Wages and salaries

10,273

13,106

Social security costs

Other pension costs

859

490

1,052

615

11,622 14,773

10,600

13,403

907

547

1,099

667

12,054 15,169

2014 2013

Association £’000

Group £’000

Association £’000

Group £’000

The Association's employee numbers and salary costs include amounts recharged from subsidiary entities.

12. Taxation on surplus/ (deficit) on ordinary activities

Analysis of tax charge in year

Current year

-

(6)

Deferred tax

3

3

(30)

(36)

13,048 9,469

-

3

3

3

(30)

(27)

(11) (16)

Association Group

2014 £’000

2013 £’000

2014 £’000

2013 £’000

Surplus/ (deficit) on ordinary activities before tax

Tax on profit on ordinary activities at standard rate of 23% (2013: 24%)

3,001 2,274

Effects of:

(2,999) (2,300)

(3) (3)

- - Exempt due to charitable status

Fixed asset differences

Expenses / (Income) not deductible / (taxable) for tax purposes

37

(60)

-

112

Capital allowances in excess of depreciation (28) (15)

-

2

-

(2)

- -

Other short term timing differences - (45)

- (2)

- 25

- (2) Marginal relief

Unrelieved tax losses and other deductions arising in the period 51 (7) 1 (7)

- (6) - 3

Adjustments in respect of prior periods (2) (23) - (8)

47




At 1 April 2013

Additions

Components replaced

Schemes completed

Property disposals

At 31 March 2014

Cost

Additions

At 1 April 2013

Transfer to current assets

Component disposals

Reclassification

At 31 March 2014

Schemes completed

Disposals

Reclassification

Housing property depreciation and impairment

At 1 April 2013

Opening balance adjustment

Depreciation charge for year


Depreciation eliminated on property disposals

Reclassification

Shared ownership

under construction

£’000 Total £’000

Completed shared

ownership held for letting £’000

Housing properties

under construction

£’000

3,014

5,097

-

(11,082)

-

6,669

14,759

4,147

(1,155)

-

-

3,880

(4,231)

-

21,335

-

-

1,088

(389)

43,079

3

42,751

(94)

-

(166)

21,186

200

(183)

1,327

575

-

(1,088)

-

695

1,621

958

(796)

-

-

1,404

(200)

(298)

238,506

5,740

2,123

-

(5,242)

489,189

16,757

478,304

(2,035)

(718)

-

241,102

-

(3,144)

Completed houses

held for letting

£’000

212,830

68

2,123

11,082

(4,853)

438,746

374

430,448

10

(718)

166

214,632

4,231

(2,663)

- (280) - - 280

- -

-

-

699

2

80

(34)

- -

-

-

23,089

2

3,623

(34)

22,390

-

3,543 -

-

-

(6)

(4)

-

-

(286)

-

(280)

4

- - - (722) (722) Depreciation eliminated on component replacements

At 31 March 2014

Net book value

At 31 March 2013

- 737 - 25,672 24,935

1,133

20,717

(369)

216,709

195,228

2,789 21,156 (709) 222,415 At 31 March 2014 199,179

Development administration costs capitalised in the year totalled £1,011,317 (2013: £920,510). Interest capitalised on development during the year totalled £203,656 (2013: £166,981).

13. Tangible fixed assets – housing properties (Group)

48



All properties are held on either a freehold or long leasehold basis. The Group is unable to analyse this further except at excessive cost.

Expenditure on works to existing properties

2013 £’000

Improvement works capitalised

Amounts charged to the income and expenditure account

2014 £’000

2,123

6,871

2,528

6,319

8,994 8,847


2013 £’000

Capital grant

Revenue grant

2014 £’000

241,102

-

238,506

-

241,102 238,506

Total accumulated social housing grant received/receivable at 31 March:

49



14. Other tangible fixed assets (Group)

Depreciation

At 1 April 2013


At 31 March 2014

Cost or valuation


At 1 April 2013 Additions

At 31 March 2014

Charge for the year

Eliminated on disposals

Motor vehicles £’000

Total £’000

Furniture and

equipment £’000

Land and buildings

£’000

1,676

-

7,590

-

6,692

1,074

1,774

208

(110)

2,339

1

5,051

(76)

4,555

581

2,818

485

(7)

97

-

461

-

463

53

185

102

(14)

4,112

1

13,102

(76)

12,010

1,708

4,777

795

(131)

Investment properties

£’000

-

-

-

300

-

-

-

-

Net book value

At 31 March 2013

5,016

2,216

366

7,898

300

5,816 2,233 276 8,325 At 31 March 2014 -

Disposals (176) (9) (55) (540) (300)

-

15. Investments (Group)

As at 31 March 2014 the Group (via Adactus Housing Association Limited) held a 33.3% interest in the ordinary share capital of Renaissance Miles Platting Holding Company Limited, a company incorporated in the United Kingdom. Through its wholly owned subsidiary undertaking (Renaissance Miles Platting Limited) Renaissance Miles Platting Holding Company Limited operates a Private Finance Initiative on behalf of Manchester City Council, for

the provision of management and maintenance services and the carrying out of refurbishment to social housing properties, along with the construction of private sector housing, in the Miles Platting area of Manchester. This investment was sold in April 2014 as outlined in note 31.

Renaissance Miles Platting Holding Company Limited and Renaissance Miles Platting Limited prepare financial statements to 30 June each year.

The Group’s interest in the joint ventures was as follows:

2013 £’000

Share of gross assets

Share of gross liabilities

2014 £’000

24,047

(24,024)

25,394

(24,920)

23 474

50



16. Properties for sale (Group)

2013 £’000

Offices

Work in progress

2014 £’000

-

837

290

637

3,024 2,779

Housing properties 2,187 1,852

17. Debtors

Amounts falling due within one year

Rent and service charges receivable

-

-

Less: provision for bad and doubtful debts - -

- -

3,195

2,873

(1,976) (1,685)

1,219 1,188

Group Association

2014 £’000

2013 £’000

2014 £’000

2013 £’000

restated

Prepayments and accrued income 260 262

Related party debtor 110 9

452 916

1,341 1,076

Other taxation and social security

Deferred tax

13

27

4

30

Other 170 -

13

27

311

30

1,194 950

580 305 4,246 4,471

51



18. Creditors

Amounts falling due within one year

Debt (see note 19)

-

-

Trade creditors 469 471

- -

20,240

1,927

1,233 2,424

2,442 1,582

Recycled capital grant fund (note 20)

Taxation

-

-

-

11

Social housing grant received in advance - -

-

-

22

16

511 1,165

Amounts owed to other group companies

Other taxation and social security

612

-

85

-

Accruals and deferred income 631 902

-

448

-

310

5,455 5,293

1,712 1,469 32,342 14,413

Rent and service charges received in advance

Other - - 2,014 1,674

Amounts falling due after more than one year

Debt (see note 19)

-

-

Recycled capital grant and disposal proceeds funds (see note 20) - -

162,349

182,895

2,322 2,372

- - 164,671 185,267

52

Group Association

2014 £’000

2013 £’000

2014 £’000

2013 £’000

restated



19. Debt (Group)

2013 £’000

Within one year

Between one and two years

2014 £’000

20,240

1,552

1,927

20,267

168,889 157,957

Debt repayable by instalments

Between two and five years

In five years or more

14,853

132,244

8,322

127,441

Within one year

Between two and five years

-

3,500

-

3,500

182,589 184,822

Debt not repayable by instalments

In five years or more

Less: Issue costs

11,840

(1,640)

24,972

(1,607)

Total debt

At 31 March 2014 the Group had undrawn borrowing facilities of £43.7m (2013: £43.7m).

Loans from external funders are secured by fixed charges on individual housing properties. Housing loans are repayable with interest chargeable at varying rates 0.5% to 11.5% during the year.

53

20. Recycled capital grant and disposal proceeds funds (Group)



In 2013/2014 £1.2m was drawn from the fund to assist in the development of 10 shared ownership and 29 rented units.

At 1 April

Grants/proceeds to recycle

2,394

1,090

3,553

1,320

Interest 11 17

(1,173) (2,496)

2,184

1,054

210

36

10 1

(1,173) -

RCGF £’000

DPF £’000

2014 Total £’000

2013 Total £’000

At 31 March

Analysed as

2,322

2,394

Due within 1 year - 22

2,075

247

- -

Due in more than 1 year 2,322

2,322

2,372

2,394

2,075

2,075

247

247

Grants/proceeds recycled

21. Called up share capital (Association)

2013 £

At 1 April

Issued in the year

2014 £

284

-

284

-

284 284

Shares of £1 each issued and fully paid

At 31 March

54

22. Reserves



At 1 April 2013

Surplus for the year

10

(14)

Revenue reserves £’000

At 31 March 2014 (4)

Association

At 1 April 2013

Surplus for the year

6

-

39,360

13,200

Revaluation (6) -

- (614)

3,184

-

916

-

- -

- -

Designated reserves

£’000

Restricted reserves

£’000

Revaluation reserves £’000

Total reserves £’000

Reserve transfers - - (13) (46)

Actuarial loss

35,254

13,200

6

(614)

Revenue reserves £’000

59

At 31 March 2014 - 51,946 3,171 870 47,905

Group

55



At 1 April 2013

Transfer to designated reserve

3,138

-

3,184

-

Transfer to income and expenditure account - (13)

23

-

23

-

- (13)

Furniture and

equipment £’000

Tenants welfare £’000

Major repairs £’000

2014 £’000

At 31 March 2014 3,138 3,171 23 10

23. Designated reserves (Group)

24. Notes to the cash-flow statement

a. Reconciliation of operating surplus to net cash inflow from operating activities

2013 £’000

Depreciation and amortisation

Impairment

2014 £’000

4,420

-

4,307

-

295 (4,213)

Operating surplus 20,814 18,758

(Increase)/decrease in properties for sale

(Increase)/decrease in debtors

(245)

225

1,769

2,278

Net cash inflow from operating activities 25,644 22,581

Share of joint venture surplus 70 (335)

Increase/(decrease) in creditors

Difference between pension charge and cash contribution 65 17

56



b. Reconciliation of net cash inflow to movement in net debt

2013 £’000

Change in net debt resulting from cash flows

At 1 April

2014 £’000

2,233

(176,946)

5,645

(178,595)

Increase/(decrease) in cash in the year 4,814 (3,996)

At 31 March (169,899) (176,946)

Change in net debt 7,047 1,649

c. Analysis of changes in net debt

31 March 2014 £’000

Debt due within one year

Cash-flows

£’000

(18,313)

7,047

(20,240)

(169,899)

Cash investments 4,814 12,690

Debt due after one year 20,546 (162,349)

1 April 2013 £’000

(1,927)

(176,946)

7,876

(182,895)

57



25. Capital commitments (Group)

2013 £’000

Capital expenditure that has been authorised by the boards of the subsidiaries but has not been contracted for

2014 £’000

112,833 41,405

Capital expenditure that has been contracted for but has not been provided for in the Financial Statements 76,010 33,171

The amount contracted for as at 31 March 2014 will be funded from cash resources, grants approved by the Homes and Communities Agency and undrawn loan facilities.

26. VAT Shelter: stock transfer obligations (Group)

Immediately prior to entering into a Stock Transfer Agreement between Chorley Borough Council (the Council) and Chorley Community Housing (CCH), the Council contracted with CCH to perform the refurbishment works required to bring the CCH properties to be transferred into an agreed state. At the date of transfer the contract was for an estimated sum equal to the expected cost of the works i.e. £58.3m, (net of VAT).

At transfer CCH contracted with the Council to acquire the benefit of the agreed refurbishment works (£58.3m net of VAT- estimated at the date of transfer) plus the housing properties at a price equal to the agreed value of the properties in their unenhanced condition (£2.2m). The nature of the works has been specified in a development agreement and a right of set off exists between the contracts. These contracts have enabled CCH to recover VAT on improvement costs that would otherwise have been expensed.

At the time of the transfer CCH paid over a net cash amount of £2.2m to the Council, representing the acquisition of the properties in their unenhanced condition (£2.2m) plus the value of the Council’s obligation to carry out the refurbishment works (£58.3m net of VAT- estimated at the date of transfer), less any amount due to be incurred by CCH under the development agreement in relation to the anticipated cost of the improvements (£58.3m, net of VAT).

The impact of these two transactions is that whilst the Council has a legal obligation to CCH to complete the refurbishment works, this work has been contracted back to CCH who are also legally obliged. The underlying substance of the transaction is therefore that CCH has acquired the properties in their existing condition at their agreed value, and will complete certain improvements in line with guarantees to tenants.

In the opinion of the board, the commercial effect of these transactions when viewed as a whole does not, in practice, create separate assets and liabilities for reporting purposes. Therefore, in accordance with FRS 25 the resulting debit and credit balances, relating to the legal obligation of the Council to complete the refurbishment works for the Association and the equal and opposite legal obligation of CCH to perform the improvement works for the Council, have been offset and are not recorded in the balance sheet.

As at 31 March 2014 improvement works to the value of £38.1m have been completed since transfer, net of £5.49m VAT shelter agreement receipts (2013: £38.1m net of £5.49m VAT shelter agreement receipts).

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27. Pensions (Group and Association)

a. Social Housing Pension Scheme (SHPS)

Adactus Housing Group participates in the Social Housing Pension Scheme (SHPS) defined benefit scheme. SHPS is funded and is contracted out of the state scheme.

SHPS is a multi-employer defined benefit scheme. Employer participation in SHPS is subject to adherence with the employer responsibilities and obligations as set out in the “SHPS House Policies and Rules Employer Guide”. The defined benefit scheme was closed to new entrants on 31st December 2009. A defined contribution benefit structure was made available from 1 October 2010.

The scheme operated a single benefit structure, final salary with a 1/60th accrual rate until 31 March 2007. From April 2007 there are three benefit structures available, namely:

• Final salary with a 1/60th accrual rate.


• Career average re-valued earnings (CARE) with a 1/60th accrual rate.

From April 2010 there are a further two benefit structures available, namely:


• Career average re-valued earnings (CARE) with a 1/80th accrual rate.

An employer can elect to operate different benefit structures for their active members (as at the first day of April in any given year) and their new entrants. An employer can only operate one open benefit structure at any one time. An open benefit structure is one which new entrants are able to join.

The Group has elected to operate the final salary with a 1/60th accrual rate, benefit structure for all members in the defined benefit scheme.

The trustee commissions an actuarial valuation of the scheme every 3 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, the Group paid contributions at the rate of 11.4%. Member contributions varied between 6.4% and 8.4% depending on their age.

As at the balance sheet date there were 121 active members of the scheme employed by the Group. In the year to 31 March 2014, the Group made £859,000 of employer contributions to the scheme.

It is not possible in the normal course of events to identify on a consistent and reasonable 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 from total scheme assets. Accordingly, due to the nature of the scheme, the accounting charge for the period under FRS17 represents the employer contribution payable.

The last formal valuation of the scheme was performed as at 30 September 2011 by a professionally qualified actuary using the Projected Unit Method. The market value of the scheme’s assets at the valuation date was £2,062m. The valuation revealed a shortfall of assets compared with the value of liabilities of £1,035m, 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 2013. 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 £2,718m. The actuarial report revealed a shortfall of assets compared with the value of liabilities of £1,151m, equivalent to a past service funding level of 70%.

59



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

Pension increases:

Pre 88 GMP 0.0

Post 88 GMP 2.0

Excess over GMP 2.4

Price inflation 2.9

Expenses for death in service insurance, administration and PPF levy are included in the contribution rate.

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 that will apply from April 2013 required from employers and members to meet the cost of future benefit accrual were assessed at:

Benefit structure

Final salary with a 1/60th accrual rate 19.4


Career average re-valued earnings (CARE) with a 1/60th accrual rate 18.1




Long-term joint contribution rate (% of pensionable salaries)

60



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 £1,035m would be dealt with by the payment of deficit contributions as shown in the table below:

From 1 April 2013 to 30 September 2020 A cash amount(*) equivalent to 7.5% of members’ earnings per annum (payable monthly and increasing by 4.7% per

annum each 1 April)

From 1 October 2020 to 30 September 2023 A cash amount(*) equivalent to 3.1% of members’ earnings per annum (payable monthly and increasing by 4.7% per

annum each 1 April)

From 1 April 2013 to 30 September 2026 £30,640,000 per annum (payable monthly and increasing

by 3% per annum each 1 April; first increase on 1 April 2014)

(*) 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.

These deficit contributions are in addition to the long-term joint contribution rates as set out above.

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 2014. The results of this valuation will be available in Spring 2016.

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 on-going 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.

61



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 there is a buy-out debt.

The leaving employer’s share of the buy-out debt is the proportion of the scheme’s liability attributable to employment with the leaving employer compared to the total amount of the scheme’s liabilities (relating to employment with all the currently participating employers). The leaving employer’s debt therefore includes a share of any ‘orphan’ liabilities in respect of previously participating employers.

The amount of the debt therefore depends on many factors including total scheme liabilities, scheme investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time.

The Group has been notified by The Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme, based on the financial position of the scheme as at 30 September 2013. At this date the estimated employer debt for the Group was £33.7m, and £9.9m for the Association.

b. Pension - Greater Manchester Pension Fund (GMPF)

Adactus Housing Association Limited participates in the Greater Manchester Pension Fund (GMPF). GMPF is a multi-employer defined benefit scheme under the regulations governing the Local Government Pension Scheme. This scheme is funded and is contracted out of the state scheme.

There is an actuarial valuation of the GMPF every 3 years. The main purpose of the valuation is to determine the financial position of the GMPF in order to determine the level of future contributions required so that the GMPF can meet its pension obligations as they fall due.

The last formal valuation of the GMPF was performed at 31 March 2013 by a professionally qualified actuary using the Projected Unit Method.

The market value of the GMPF’s assets at the last valuation date was £12,590m. The valuation revealed a deficit of assets compared to liabilities of £1,317m.

The Group paid contributions at the rate of 16.6% (2013: 15.6%) during the year to 31 March 2014. Member contributions varied between 5.9% and 6.5 %.

The employers’ contributions to the GMPF by the Group for the year ended 31 March 2014 were £29,000 (2013: £31,000).

The major assumptions used by the actuary in assessing scheme liabilities for FRS 17 purposes as at 31 March 2014 were as follows:

Financial assumptions

*Salary increase assumed to be 1% p.a. until 31 March 2015 reverting to the long term assumption of 3.6% thereafter.

31 March 2013

% per annum

Expected Return on Assets

Future pension increases

31 March 2014

% per annum

5.9

2.8

5.1

2.8

Discount rate 4.3 4.5

Future salary increase 3.6 3.6*

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Mortality assumptions

The assumed life expectations on retirement at age 65 are:

2013 Number of

years

Males

Retiring in 20 years:

2014 Number of

years

21.4

20.1

Retiring today:

Females 24.0 22.9

Males 24.0 22.5

Females 26.6 25.0

Expected return on assets

The expected returns on assets are:

2012 % pa

Bonds

2013 % pa

3.5

3.0

3.9

3.5

Equities 5.7 6.3

Property 3.9 4.4

Cash

2014 % pa

3.8

3.7

6.6

4.8

Expected return on assets at:

63



Analysis of the amount charged to the income and expenditure account

2013 £’000

Amounts charged to operating deficit

2014 £’000

36 34

Current service costs 36 34

Interest on scheme liabilities 87 79

Expected return on scheme assets (76) (74)

Actual return on scheme assets 118 192

Amounts credited to other finance income 11 5

Cumulative actuarial loss recognised in STRSD (528) (324)

Actuarial loss in pension scheme recognised in STRSD (204) (103)

Statement of total recognised surplus and deficits

2013 £’000

2014 £’000

2013 £’000

2014 £’000

64



Amounts recognised in the balance sheet

2013 £’000

Net liability recognised in balance sheet

2014 £’000

(646) (424)

Present value of funded obligation (2,260) (1,929)

Fair value of scheme assets (bid value) 1,614 1,505

Reconciliation of deficit

2013 £’000

Current service cost

Contribution by employer

2014 £’000

(36)

29

(34)

31

Opening scheme liabilities (424) (313)

Past service gain - -

Net interest income (11) (5)

Actuarial loss (204) (103)

(646) (424)

65



Reconciliation of opening and closing balances of the present value of scheme liabilities

2013 £’000


Contribution by employee

2014 £’000

(36)

(11)

(34)

(13)

Opening scheme liabilities (1,929) (1,651)

Past service cost - -

Interest cost (87) (79)

Actuarial losses (246) (221)

49 69 Benefits paid

(2,260) (1,929) Closing scheme liabilities

2013 £’000

Expected return on scheme assets

Contribution by employer

2014 £’000

76

29

74

31

Opening fair value of scheme assets 1,505 1,338

Actuarial gains 42 118

Contribution by employee 11 13

Benefits paid (49) (69)

Reconciliation of opening and closing balances of the fair value of scheme assets

1,614 1,505 Closing fair value of scheme assets

66



Major categories of plan assets as a percentage of total plan assets

2013 %

Bonds

Cash

2014 %

17

5

17

6

Equities 72 72

Properties 6 5

2010 £’000

Fair value of scheme assets

Experience adjustment on plan liabilities

2011 £’000

1,357

107

1,435

-

Present value of scheme liabilities (1,580) (1,466)

Deficit on scheme (223) (31)

Experience adjustment on plan assets (183) 307

Amounts for the current and previous four accounting periods

2012 £’000

2013 £’000

1,505

1

1,338

(9)

(1,929) (1,651)

(424) (313)

118 (68)

2014 £’000

1,614

(121)

(2,260)

(646)

42

c. Lancashire County Pension Fund (LCPF)

Chorley Community Housing Limited participates in the Lancashire County Pension Fund (LCPF). The LCPF is a multi-employer defined benefit scheme under the regulations governing the Local Government Pension Scheme. This scheme is funded and is contracted out of the state scheme.

There is an actuarial valuation of the LCPF every 3 years. The main purpose of the valuation is to determine the financial position of the LCPF in order to determine the level of future contributions required so that the LCPF can meet its pension obligations as they fall due.

The last formal valuation of the LCPF was performed at 31 March 2013 by a professionally qualified actuary using the Projected Unit Method. The market value of the LCPF’s assets at the last valuation date was £5,011m. The valuation revealed a deficit of assets compared to liabilities of £1,377m.

The employer’s contributions to the LCPF by Chorley Community Housing Limited for the year ended 31 March 2014 were £124,000 (2013: £151,000). The employer’s contribution for the year to 31 March 2014 was 14.1% (2013: 14.1%).

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The major assumptions used by the actuary in assessing scheme liabilities for FRS 17 purposes as at 31 March 2014 were as follows:

Financial assumptions

31st March 2013 % pa

Future salary increases

31st March 2014 % pa

3.3 3.3

Discount rate 4.5 4.2

Future pension increases 2.4 2.4

2013 No. of years

Males

2014 No. of years

22.8 22.1

Retiring today

Females 25.3 24.8

Mortality assumptions

The assumed life expectations on retirement at age 65 are:

Males 25.0 23.9

Retiring in 20 years

Females 27.7 26.9

68



Expected return on assets

The expected returns on assets are:

2012 % pa

Government bonds

2013 % pa

2.8 3.1

Equities 7.0 7.0

Other bonds 3.9 4.1

Cash 0.5 0.5

Property 5.7 6.0

Other 7.0 7.0

2014 % pa

3.4

7.0

4.3

0.5

6.2

7.0

Expected return on assets at:

2013 £’000

Past service gain

2014 £’000

- -

Current service cost 182 137

Analysis of the amount charged to the income and expenditure account

Amounts charged to operating surplus 182 165

Curtailments - 28

2013 £’000

Interest on scheme liabilities

2014 £’000

428 399

Expected return on scheme assets (521) (463)

Actual return on scheme assets 382 1,236

Amounts credited to other finance costs (93) (64)

69




2013 £’000

Cumulative actuarial loss recognised in STRSD

2014 £’000

(359) 51

Actuarial loss in pension scheme recognised in STRSD (410) (792)

2013 £’000

Fair value of scheme assets (bid value)

2014 £’000

9,554 9,408

Present value of funded obligation (10,672) (10,151)

Present value of unfunded obligations (1,118) (743)

Related deferred tax asset - -

Unrecognised past service cost - -

Net liability (1,118) (743)

Amounts recognised in the balance sheet

Net pension liability at 31 March

2013 £’000


2014 £’000

(182) (137)

Opening scheme (liabilities) (743) (1)

Past service gain - -

Contributions by employer 124 151

Curtailments - (28)

Net interest income 93 64

Reconciliation of deficit

Actuarial loss (410) (792)

Closing scheme deficit (1,118) (743)

70



Reconciliation of opening and closing balances of the present value of scheme liabilities

2013 £’000


2014 £’000

(182) (137)

Opening scheme liabilities (10,151) (8,118)

Curtailments - (28)

Interest cost (428) (399)

Contributions by employee (58) (60)

Actuarial gains / (losses) 1 (1,565)

Benefits/transfers paid 146 156

Closing scheme liabilities (10,672) (10,151)

Reconciliation of opening and closing balances of the fair value of scheme assets

2013 £’000

Opening fair value of scheme assets

2014 £’000

9,408 8,117

Expected return on scheme assets 521 463

Contributions by employer 124 151

Actuarial gains/(losses) (411) 773

Contributions by employee 58 60

Benefits paid (146) (156)

Closing fair value of scheme assets 9,554 9,408

71



Major categories of plan assets as a percentage of total plan assets

2013 %

Government bonds

2014 %

3.1 7.9

Equities 52.4 62.0

Other bonds 9.2 17.2

Cash 1.7 3.5

Properties 8.7 9.3

Other 24.9 0.1

28. Related parties

During 2013/14 there was one tenant member of the board, P Joyce. His tenancy with CCH was on normal social housing terms and he is unable to use his position to his advantage.

29. Group structure

Adactus Housing Group Limited was registered with the Financial Services Authority on 26 June 2002. The Group Structure contains:

• Adactus Housing Group Limited - a non-charitable parent organisation and registered provider of social housing

• Adactus Housing Association Limited - a charitable registered provider of social housing

• Beech Housing Association Limited - a non-charitable registered provider of social housing

• Chorley Community Housing Limited - a charitable registered provider of social housing

• Acuna Limited - a private company limited by shares

• Palatine Contracts Limited - a private company limited by shares.

The Association provides core administration, finance, development, management and maintenance services for each of the Group's subsidiaries. All transactions are recharged from the Association under a management agreement at an agreed return on cost. During the year the Association received intra-group payments from Palatine Contracts Limited, a non-regulated entity within the Group, totalling £625,950 in respect of administration costs.

The board of Adactus Housing Association Limited are trustees of the James Tomkinson Memorial Cottages Trust.

In addition, at 31 March 2014, the group chief executive and the group director of finance were directors of Renaissance Miles Platting Limited. This consortium was created to manage the Private Finance Initiative contract with Manchester City Council at Miles Platting.

72



30. Operating leases

Operating lease payments amounting to £855,000 (2013: £887,000) are due within one year. The leases to which these amounts relate expire as follows:

In one year or less

Between one and five years

-

133

-

581

In five years or more 173 -

-

160

58

526

111 -

2014 Other

£’000

2013 Other

£’000

306 581 271 584

Land and buildings

£’000

Land and buildings

£’000

31. Post balance sheet event

On 10th April 2014, the Group, through Adactus Housing Association Limited disposed of its interest in Renaissance Miles Platting Holding Company Limited, a company incorporated in the United Kingdom, generating a positive return on its original investment. The results of this transaction will be reported in the Financial Statements for the year ending 31 March 2015.

Details of the investment held are set out in note 15 to the Financial Statements.

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Documents

AHG Financial Statements 2013/14