Value for Money Self-Assessment 2014/15 Introduction · We have an assets and liabilities register which meets the HCA’s requirements set out in the Governance and Financial Viability

Value for Money Self-Assessment 2014/15

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Introduction

This statement gives an overview of our value for money (VFM) priorities, our achievements for the year ending 31 March 2015, and our plans for the year ahead. A summary is included in the annual report to tenants and the financial statements.

The statement shows that:

• VFM is embedded across B3Living and savings are being made each year • B3Living fully complies with the VFM standard • Performance is strong in key areas, however we are taking steps to reduce back office costs

which appear higher than many of our peers • VFM targets for 2014/15 have been met • We have clear VFM priorities going forward. In particular we have taken on the challenges of the

new Government’s budget and prepared a new business plan with challenging VFM and other targets for the remainder of 2015/16 and the years beyond.

About B3Living

B3Living is a stock transfer association now in its 10th year, owning and managing more than 4,500 homes. Most of our homes are in the Broxbourne area, although we have started to grow in the neighbouring areas of Epping, Welwyn Hatfield and East Herts. The majority of the stock is post 1960 and estate-based.

Property type Numbers General needs 2,879 Retirement housing 724 Shared ownership 151 Leasehold 662 Other 164 Total 4,580

As well as providing essential landlord services, we take pride in the work we do in the wider community, providing employment and other opportunities for residents of all ages through partnership working and our own investment.

What does VFM mean to B3Living?

Everything we do is about creating great places where people want to live, and VFM is an integral part of this. We believe in doing the right things for the benefit of our residents, and doing them efficiently, effectively and economically. This means getting the right balance between service costs and quality, managing our assets well, making good procurement decisions, and achieving strong social value outcomes.


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Our 2014/15 VFM targets were to:

• Maintain our focussed community investment at around 2% of turnover, working in partnerships to improve the life opportunities and wellbeing of our residents.

• Improve our operating surplus year on year to provide more cash for investment in new homes.

• Meet or better our annual VFM savings targets each year to maximise our growth potential. • Contain year on year costs per home as driver for VFM efficiencies. VFM is central in

supporting our corporate themes of Better Homes, Better Communities, Better Business, as set out in our 2020 Vision.

Better Homes – providing homes which our residents enjoy living in, within areas which are safe and attractive.

Better Communities – recognising that a thriving community is as important to our residents as the home that they live in. We will provide opportunities that benefit the wider community and will continue to ask residents what their priorities are so that our programme meets their needs.

Better Business – delivering excellent, efficient services, and remaining an employer of choice. We also plan to increase the number of homes we own and manage and expand into other local authority areas.

Our current VFM priorities are:Priority 2020 Vision theme

1. Managing our assets strategically 2. Generating additional income in innovative ways 3. Maximising our current income and proactively

supporting residents affected by Welfare Reform

4. Identifying areas where costs can be reduced and efficiencies can be made

5. Reviewing our procurement arrangements 6. Providing and tracking social value

Strategic approach

The Board sets the overall vision for B3Living. It decides where we spend our income and when we borrow money to grow the business. It also approves our operational strategies, including the VFM strategy which is reviewed every year. The Board is clear that VFM is a core responsibility, and it is therefore a consideration in every decision that is made.

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The Board also reviews our compliance against the Regulator’s VFM standard, and this year’s assessment concludes that we comply.

It is the role of our Executive team to embed VFM in our culture and approach, and we have a VFM champion at both Executive and Senior Management Team levels. We ensure that VFM is further embedded across the organisation through personal objectives and targets, and we monitor these during regular one to ones and annual appraisal.

At our annual planning day, Board members, staff, partners and residents work together to develop our annual action plan for the next year, and VFM is a key part of the discussions.

The Board has contributed to and approved this VFM self-assessment.

Involving residents

It is important that our residents have an understanding of VFM and are involved in key decision making. We do this by discussing VFM with our Scrutiny Panel and wider Residents’ Panel regularly, giving them performance information, and getting feedback on our VFM strategy. We also include VFM articles in our quarterly residents’ magazine.

Our Scrutiny Panel has a clear position within our decision-making framework, and is able to hold the Board and senior managers to account. The Chair of the panel sits on our Operations Committee to ensure shared understanding and a good working relationship between the panel and the Board. Our panel members have received training and support, and have the skills to challenge and scrutinise services effectively. We ensure that they develop a good knowledge of VFM issues and are able to contribute to discussions and decisions going forward.

The Scrutiny Panel members also identify areas of service that they would like to scrutinise further, and recently reviewed the management of empty properties as new tenants’ satisfaction with the standard of their home had dipped. This has resulted in an action plan which once implemented should improve the VFM of this service, e.g. better liaison with the council to ensure relevant information on potential new tenants’ needs or circumstances are up to date ahead of viewing a property so that we can reduce the number of refusals.

Both the Scrutiny Panel and the Residents Panel have contributed to this statement.


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VFM priorities in action

1. Managing our assets strategically

Active management of our assets is a key driver to running an effective and efficient business and unlocking opportunities to increase supply of new homes. We have an assets and liabilities register which meets the HCA’s requirements set out in the Governance and Financial Viability Standard. As well as being a central data base of all properties owned, with details of liabilities, we use the register for effective decision making and to aid strategic asset management.

Each year our Board reviews the asset management strategy aiming to continually improve the financial return on our assets.

Asset value – our housing assets are valued every year on an Existing Use Value – Social Housing (EUV-SH). The current EUV-SH value of our stock is £225 million, which is an average of £49k per property. This is an increase of 9% year on year which is well above the rate of inflation and the cost of our borrowing. We use this equity to borrow against so that we can develop new homes (which account for almost one third of the 9% increase).

As at March 2015, the value of our homes not mortgaged to lenders amounted to around £40 million, giving us capacity to borrow a further £36 million. This position, however, depends on the outcome of discussions between funders, investors and valuers on the impact of the 4 year rent reductions introduced in the 2015 summer budget. This could lead to lenders requiring additional security to protect their loans, which could reduce our current capacity to borrow.

Return on assets – the overall return on our housing assets for 2014/15 was 7.6%, stronger than last year’s overall 6.75% (based on operating surplus as a percentage of the cost of our homes). This compares favourably with a 4.6% cost of funding those assets (interest costs £20.7 million, less loan breakage cost of £15 million), as a percentage of our total borrowing.

Our main property classifications of general needs and retirement housing are broken down below:

General needs (all tenures) Retirement housing

H&B* F&M* Total H&B F&M Total Unit numbers 1,345 1,534 2,879 97 627 724

Operating surplus - Total (£k) 4,120 3,948 8,068 89 695 784 - Per unit (£k) 3.1 2.6 2.8 0.9 1.1 1.1

Surplus as % of asset value 5.0% 4.2% 4.6% 1.7% 2.1% 2.0% Surplus as % of net cost of housing assets 3.3% 3.2% 6.5% 0.1% 0.6% 0.6%

* H = Houses B = Bungalows F = Flats M = Maisonettes


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Managing our assets – we monitor the individual performance of assets using two Net Present Value (NPV) models. We benchmark an asset’s performance against similar properties and tenures to identify outliers and the reasons for good or bad performance. Currently all of our housing assets make a positive contribution over the 30 year business planning period. We know the reasons for low NPVs and often this is a reflection of the lower level of rent charged for smaller properties and older persons housing schemes that have additional communal services.

Rent stock NPV profile:

Within our asset management database we can highlight properties which are either high cost, relatively low NPV or Energy Performance Certificate (EPC) band D or below. This enables early decisions to be made when properties become empty around scope of potential works, and possibility for options appraisal, remodelling, change of tenure or disposal. We have agreed with our local authority partner a phase of property disposals with the proceeds of the “clawback” to be reinvested in new provision. We have a wider agreement with them to extend this arrangement to generate additional income to supplement our Homes and Communities Agency (HCA) funded development programme.

The energy efficiency of the majority of homes is above sector average, however our 2020 Vision aim is for all of our homes to have a minimum Energy Performance Rating of Band C. This initiative will both improve the condition and value of our homes, whilst at the same time have social benefits in terms of reduced fuel poverty and better health outcomes.

To improve energy efficiency of homes during 2014/15 we have:

• received an income from our investment in solar panels through feed-in-tariffs of over £100K, doubling the previous year’s return and giving a return on our investment of more than 10%;


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• continued a programme of external wall insulation where we match funded a maximum grant income through the Green Deal of £160k;

• installed 250 new efficient heating systems and new double-glazing to over 250 homes, raising the overall efficiency of our homes to well above sector average.

We invest £4-5 million a year in major works which ensures all of our homes continue to meet decent homes standards. This investment has also produced high levels of resident satisfaction (98.2%, up from 97.6% last year) and is a great indication that our services are providing value for money.

We achieved 100% resident satisfaction with our adaptations service. The £380k investment in making homes more accessible for existing residents has not only given them a better quality of life and the ability to stay in their homes longer, but has potentially prevented costs being incurred by the NHS and social services through the prevention of falls and associated injuries hospital admissions.

We own around 1200 stand-alone garages often located in discrete groups and locations that offer potential for development. We actively monitor void levels and repair liabilities so that reviews are triggered. This will be a growing area for releasing the value in our estate.

We have recent stock condition data on over 75% of our homes held within a database that plans programmes of work based on condition and just-in-time lifecycle renewal. We review the database costs and lifecycles against current pricing and delivery contracts each year and update the system with completed works within the year. The major works costs are then reviewed against business plan assumptions.

Current initiatives to make best use of homes include:

• Designing remodelling options for two of our independent living schemes felt to be unsuitable their current purpose. This will provide better outcomes for us in terms of financial viability and more suitable accommodation for residents.

• Working with the local authority on options to regenerate one of largest estates which has substantial planned maintenance liabilities. We are looking at development opportunities to cross-subsidise improvements of the existing fabric and also increase the tenure mix.

• Carrying out a review of our existing empty homes standard and processes to make properties more lettable, which should improve turnaround times and satisfaction levels.

• Using the data from the recent stock survey to ensure we are fully aware of potential repairing liabilities, particularly for the 10% of our stock which is of non-traditional construction.

2. Generating income in innovative ways

As well as achieving savings, we want to generate additional income which will be used to improve services and build or acquire new homes.


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To maximise our potential to grow we have:

• Converted around 200 properties to affordable rents when relet, giving us an additional income of £529K for the year. The number of conversions depends on the volume of voids in the year, the demand for specific tenure types and the affordability criteria in the areas that we operate.

• Been awarded a second AHP contract with the HCA for 2015/18, backed with further grant funding from the Borough of Broxbourne, to provide around 100 addition homes.

• Refinanced expensive bank debt, through the bond markets, reducing our loan interest by over £700K per year, improving our key finance performance indicators. When comparing the breakage costs of around £15 million with the accumulated interest savings, we see a benefit of more than £5 million. Plus, the lower interest charges and beneficial covenant terms result in further capacity to borrow additional funds to build more homes.

• Obtained a £30 million revolving credit facility (completed in 2015/16) with Lloyds Plc to facilitate continuing growth and development and to maintain strong liquidity.

• Commenced a programme of high value/high cost property disposals (having reach agreement with the local authority on the reinvestment of property disposals in replacement homes). The deal means that a single disposal can produce more than a one for one replacement.

• Continued discussions with our Board on a diversification agenda designed to generate income to replace diminishing capital grants. Board authorised investigation into to the purchase of the office block next door to our current offices to provide a rental income to offset loan interest payments as well as a longer term development opportunity and the securing of our future in the current office accommodation.

• Continued to progress a ‘mixed motive’ investment to maximise interest received through a £1.5 million ‘loan’ to a local development contractor, attracting interest of 6% p.a. (against the 1% normally received on cash deposits) and in addition will see us grow by 9 homes once the development is complete.

3. Maximising our current income and proactively supporting residents affected by Welfare Reform

We continually look for ways to maximise our income, and this includes supporting residents to pay their rent and get the benefits they are entitled to. To achieve this we have:

• Worked closely with residents most affected by Welfare Reform to offer support and advice, and as a result we have maintained top quartile rent arrears performance, with arrears at 1.27% as at end of 2014/15 (including water and sewerage arrears too). We have successfully accessed Discretionary Housing Payments (DHP) from the Borough Council.


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• Introduced a housing management charge in our Independent Living schemes which has helped us to mitigate our losses following the end of Supporting People, saving us £335K per year.

• Focussed on improving garage occupancy and over 99% are now occupied, producing an income of around £580K after repairs.

• We lease a range of properties to others for specific purposes ranging from the use as homeless hostels to offering specialist mental health accommodation. Renegotiating leases with other housing associations secured an additional £32K of income from 10 properties, and maintained the schemes’ viability.

• Converted 2 of our guest rooms in our independent living schemes so they can be used as a self-contained assessment rooms. This has helped us to generate an additional £5K during the year whilst helping vulnerable people. We plan to do more conversions during 2015/16.

• Through our community development and partnership working initiatives we have supported the employment of 131 people overall, of which 75 were B3 residents. The employability worker post, created in 2014, has supported 196 people with one to one support, helping 31 of our own residents into jobs and 40 into volunteering or work placement programmes. This has directly impacted on rent collection, with some residents being able to pay off substantial rent arrears. Our partnership with the CAB (including our funding of a money advice worker) has helped our residents get £167K in backdated benefits and tax credits during the year.

• Our development programme is helping the business to grow and increase income, and we can manage the planned growth with existing levels of staff. During 2014/15 we completed 40 new homes for rent, 11 shared ownership properties and purchased 3 properties. These 54 homes brought in £1,076K in shared ownership sales and will provide an additional £412K per year in rent. To achieve best value, the homes were procured either from an externally pre-selected list (from an EU framework) or through competitive tendering, their cost being subsidised through local authority and HCA grant in addition to our own capital sums via “void conversions”. We are also actively pursuing a number of possible acquisitions from other housing associations another way of reducing our costs per property.

4. Identifying areas where costs can be reduced and efficiencies can be made

We have a number of internal improvement and VFM drivers:

a) Service reviews – we have a rolling programme of service reviews, and VFM is integral to each review, ensuring that efficiencies are identified where possible and that alternative ways to deliver services are considered. In the last year we have developed our own in-house service review methodology which includes a range of tools such as value stream mapping and process flow charts. In 2014/15 we reviewed the Customer Service Centre (CSC) and one of the outcomes was to reorganise existing staff to create efficiencies. This has resulted in reduced errors, a better service for residents and clearer responsibilities. During this coming year we will


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be reviewing our highest cost areas of the business around development, asset management and repairs and will use external experts for these more strategic reviews.

Our residents’ Scrutiny Panel carries out reviews which provide a good qualitative evaluation of a particular area of service, and residents’ feedback is always sought for any type of service review.

b) External accreditations – external scrutiny also help drive efficiencies and improvements. We are Investors in Excellence accredited and one outcome from has been the development of a service improvement methodology. This is being used for full reviews of services and also for mini reviews of particular areas of a service where we have seen some ‘quick wins’, for example the tenant sign up process was looked at recently and substantially simplified to increase efficiency and improve the customer experience.

The Sunday Times Best Companies to work for process is also used to identify improvements – each year we work on areas where scores have either dipped or are lower than other areas. Examples of actions taken in 2014/15 include revising our volunteering policy to make it more accessible, holding focus groups in each of the factors to find out staff views, holding one to one meetings with senior managers to find out underlying issues and communicating the daily activities of our senior leaders.

Our annual credit rating review with Moody’s involves a thorough investigation of our financial position which satisfaction to all our stakeholders that the business is sound.

c) Performance information – we scrutinise performance at all levels to identify reasons for dips in performance. We also use complaints to identify trends and improve areas where mistakes are made.

d) Using HouseMark and other benchmark data – we benchmark through HouseMark and use the data to help understand our operational costs and overheads. We can also see where we sit in both quality and cost terms against our peers, and take conscious decisions about where we want to be. During the year we have defined a peer group based on other organisations with similarities in terms of size, location, property mix, and our heavy financial and staff investment in community activity. We also use the HCA’s Global Accounts and PlaceShapers VFM data to assess and compare our performance with others.

e) Staffing – before filling a vacancy we look to see if there is an opportunity to make a saving and/or deliver the work in a more cost effective way – for example we saved £15K by not replacing a part-time Personal Assistant and covering the work within existing resources. We also saved more than £100K per year by reducing the Executive team by one post through redundancy.

5. Reviewing our procurement arrangements

Our procurement strategy ensures a consistent approach to all purchasing activity from office stationery to major works contracts and new build development.


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We analyse supplier spend annually which tells us who we are spending with, and what we are getting for our money. We also review all current contracts and suppliers annually. By monitoring spend at supplier and category level we can benchmark and compare spending patterns year on year. We have produced a central contracts register which monitors when new procurements and contract reviews are required.

In 2014/15 we continued consultation with leaseholders to benefit from a pan-London procurement of major works contractors under the London Construction Programme. This OJEU compliant framework agreement has now been launched with a panel of up to 10 contractors to competitively tender for all major refurbishment and new build projects. The framework has a North London regional lot which has some major contractors who work and employ local to us as a business.

Procurements from contracts under £100K will give us scope to involve more local small businesses who can equally provide value in terms of smaller overheads and suitability for specific work.

During the year we retendered our insurance arrangements and saved £200K.

Our new procurement policy has commitments for our suppliers around the Living Wage and the diversity of their workforces.

6. Providing social value

Our core services produce social value, but we aim to add additional value for both our residents and the wider community through the delivery of our 2020 Vision.

a) Investment in our existing assets – as well as improving homes for business purposes, there is also a significant impact on our residents’ quality of life and wellbeing. We are discussing with HACT a way to measure the social, financial and environment performance of our homes and incorporate high level options appraisal to optimise asset potential.

As a result of the works we do, residents have told us that they feel safer, have more pride in their homes, enjoy cheaper heating costs and are generally happier with where they live.

We have introduced a home visit to all properties due a new kitchen or bathroom by a newly created post of a Home Condition Officer. As well as checking that renewal is definitely required, these visits also highlight any support issues such as residents suffering mental or physical health issues and issues around hoarding. The officer then assists residents in turning their properties around and signposting to other agencies as required

Our investment of £380K in adaptations to homes has given a better quality of life to residents making them more independent, mobile, safer and confident in their homes.

Despite recent cuts to external funding sources such as the Green Deal we will continue to invest in energy efficiency measures that make our homes easier and cheaper to heat so that our residents will continue to benefit from cheaper fuel bills and being able to keep warmer. Our healthy eating and ‘get people gardening’ campaigns have been supported by the


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installation of communal garden areas on some of our larger estates, promoting a sense of community and wellbeing.

b) Community development – in 2014/15 we invested £413K in community projects which support one or more of our agreed priority areas:

• Financial inclusion • Employment • Education and skills • Healthy living • Social inclusion

We work with more than 50 partners to actively deliver our programme, sharing resources where possible to maximise the impact. We have undertaken a full impact assessment for all projects supported during the year, and have used the HACT wellbeing model for a sample of these projects to help measure the social impact. Those which benefit more people score more highly (up to £89 of value for each £1 invested for our Easter white water event). Whilst the HACT model enables VFM comparisons between similar projects, we do not use it as an overall assessment of a project’s success and VFM, for example our bursary project shows a low return of £3 for each £1 invested, but the benefits to a small number of people are enormous and it is therefore something we want to continue. Some of the highlights are:

Project Investment Outcomes B3 Driving Academy – subsidised lessons for B3 tenants where driving will help them get work

£10,000 14 residents passed their test; 13 are now in work as a result

CAB worker – supports B3 residents with financial advice and assistance

£25,000 3,479 people supported (223 B3 tenants); £138,000 secured in tax credits and backdated benefit payments; £28,000 of debt written off

Employability service – variety of initiatives aimed at getting residents into work, including employment of an employability worker

£25,000 230 tenants referred ; 196 received 1:1 support; 31 jobs secured; 90 referred to employment courses

Family intervention project – intensive support for families at risk

£16,000 36 families supported (22 B3 tenants); 8 families kept their homes as a result

Growing it alone project – community growing space to create social inclusion and encourage healthy eating

£10,000 from National Lottery; £1,000 from B3

20 residents involved; vegetables and herbs grown and harvested; cheap source of healthy food for residents

Holdbrook Hub – community resource on one of our more deprived estates

£41,000 B3 spend; £18,000 from DWP for set up and running costs

700 visits in first 6 months, providing IT training courses, homework club, internet access, community facility; partnerships in place to deliver services

Halloween white water event – diversionary project held via Olympic Legacy at Lea Valley White

£700 Through partnership working we secured activities to the value of £7,000 for a fraction of the cost; 120 residents


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Project Investment Outcomes Water Centre, bringing targeted communities together

attended; no nuisance reported from targeted areas; priority to families receiving intensive support

Free/subsidised training – B3 covers the cost of courses for both pleasure and career development up to £150 per course

£5,000 40 residents attended courses

(Follow this link to our full community development impact assessment)

c) Building and acquiring new homes – many of the homes we build meet ‘Lifetime Homes’ standards, meaning they are accessible and more easily adaptable for residents who may develop disabilities during their residence. Our flagship flatted development which is a mixed tenure scheme featuring secure undercroft parking with lift access to four/five storeys above, is nearing completion.

Providing new homes is essential because of the acute shortage in housing supply. Broxbourne, our main area of operation, is an area of great housing need and we take our responsibility to provide new homes very seriously, getting the most out of our asset base in terms of borrowing for growth, and also as a means of reducing our overheads through economies of scale. New arrears of Hatfield, Epping and East Herts all feature hyper-inflated prices producing significant affordability issues, and therefore Shared Ownership is a viable product which will help people onto the housing ladder.

d) B3 as an employer – we continue to be significant employer in the Borough, employing around 200 staff. We also work closely with other employers to help them fill vacancies locally and run skills-based academies to give our residents the best chances of securing the type of jobs available.

We have set aside a significant resource to run an apprenticeship programme. We typically employ around 10-12 apprentices at any one time, representing some 5-6% of our work force. We have also supported local employers to take on apprentices directly. We have done this primarily as a response to our residents telling us that lack of employment opportunities in the local area, particularly for younger people, is a major concern to them. Whilst we do not guarantee our apprentices a permanent job at the end of their apprenticeship, in fact many of them have gone on to secure permanent roles with us. This is an excellent way to feed into our value for money agenda because it means that we have a stream of ready recruits who are already inducted into B3Living, have received a fair amount of training already and can “hit the ground running” when they start a permanent role.

For our staff generally, we invest in providing an excellent work place for staff in the way they are managed, supported, trained, developed and rewarded. We know this pays back in terms of high levels of staff engagement (we have been in the Top 10 of the Sunday Times Best Companies to Work For 4 years running) and other factors such as low turnover and absence.

http://www.b3living.org.uk/uploads/resources/201415communitydevelopmentimpactassessment_2.pdf


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e) More than just a landlord

We provide extensive support to residents who need it, over and above the core landlord service, to help people to keep their tenancies.

We provide a range of services from intensive family support, to ‘floating’ support, to signposting, to ‘hands off’. We managed to maintain the housing related support we offer older residents, despite large reductions in Supporting People income, due in part to efficiencies and the introduction of a new service charge in our retirement properties.

We have excellent partnership arrangements with Herts Credit Union, the local Citizens Advice Bureau (both of which we support financially). During 2014/15 we managed to secure £167K of backdated housing benefit and tax credits via the CAB.

This year we have created 12 furnished tenancies for vulnerable residents on Housing Benefit. Housing Benefit covers the service charge for the furniture and so far these tenancies have been very successful, equipping tenants with home essentials with which to start a home.

We are currently running a partnership with The Cookery, a local business, providing cookery lessons to groups of 12 residents at a time. These sessions show how to cook good food on a budget.

We run targeted programmes for older people living in both our schemes and the community. These include nutrition and dementia groups, crafts, and chair-based exercise. Our programme on dementia was shortlisted for a national award.


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Demonstrating VFM

The following indicators are used to drive and measure VFM performance:

• Turnover and Operating surplus • Operating costs / cost per home • Other significant external financial comparisons • Moody’s credit rating • HouseMark peer group comparisons for key performance indicators

Turnover and Operating Surplus

Year Turnover Operating

Costs Surplus Operating Surplus

Homes Owned

Turnover per

home

Cost per

home £m £m £m % £000 £000

2014/15 23.9 14.5 9.4 39.5 4,580 5.2 3.2 2013/14 22.0 14.5 7.5 34.0 4,536 4.8 3.2 2012/13 21.0 14.6 6.4 30.5 4,519 4.6 3.2 2011/12 19.9 14.4 5.5 27.6 4,453 4.5 3.2

A continuing increase in operating surplus shows that overall cost increases are being well contained with overall income increases, holding steady costs per home and enabling us to meet our VFM objective of continually improving our surplus to promote further growth.

Operating costs / cost per home

As the graph below shows, our cost per home remains steady and is well below the increase in turnover, demonstrating that the business is getting stronger. As our turnover rises, we will have more cash to fund our growth, hence reducing the need to borrow.

0

1

2

3

4

5

6

2011/12 2012/13 2013/14 2014/15

Turnover and cost per home

Turnoverper homeCost perhome

£000


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Unit costs are broken down as follows:

Unit cost analysis – all costs

2014/15 2013/14 2012/13

£000 £000 £000

Management costs (include staff costs) 1.1 1.2 1.3 Repairs 0.9 0.9 0.7 Services 0.6 0.6 0.7 Depreciation 0.6 0.6 0.5 Total cost per unit 3.2 3.2 3.2

Breaking down unit costs over key headings demonstrates, as above, that (despite inflation of over 2.5%) we have, over the past year, held steady our unit costs in respect of management, repairs, services and depreciation, whilst broadly maintaining service and resident satisfaction levels. Once again VFM savings have been instrumental in achieving this.

We use the HCA’s national regression analysis on cost per property to gauge our performance. The latest analysis (2010/11) showed that the overall UK average operating cost per home (excluding high support) was £2.9K. For 2010/11, we were comfortably below this at £2.5K per home. Our unit cost for 2014/15 amounted to £2.6K, again well below the HCA unit cost benchmark. With low inflation we would expect this benchmark to exceed £3K per unit by 2015/16. Figures exclude depreciation.

Other significant external financial comparisons

HCA’s 2014 Global Accounts / 2014 Place Shapers information – the strength of our operating surplus is demonstrated by benchmarking against the 2014 Homes and Communities Agency’s (HCA) Global Accounts (representing the collective results of all registered housing associations), which shows an average sector performance of 27.2% compared with our 38.6%.

PlaceShapers is a group of 114 community based housing associations who manage around 30% of England’s housing association stock. Within the PlaceShapers statistics, we have an upper quartile operating surplus.

Earnings before interest, tax, depreciation and amortisation (EBITDA) measures the adequacy of our cashflow to meet interest payments. In 2014/15, our cover was 209% compared with the sector average per the HCA’s Global Accounts of 145%.

Gearing measures the proportion of total funding represented by debt. Grant and reserves represents the ‘internal’ element of funding. Our gearing stands at 82.7% comparing favourably with sector average per the HCA’s 2014 Global Accounts of 93.8%.

Net debt per social housing unit – based on homes owned, our figure is £26,900 which is higher than the 2014 Global Accounts comparative of £22,474, reflecting the fact that we are a developing association and a fairly recent stock transfer association.


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Treasury management – the primary function of treasury management is to manage liquidity, funding, investment and the financial risk, including risk from volatility in interest rates. Our Treasury Policy requires us to manage interest rate risk by maintaining up to 80% of borrowings at a fixed rate of interest. At the end of 2014/15 our borrowing was, with Board consent, in excess of this at 100% fixed, reflecting our recently completed refinancing, but offering full management of interest rate risk. The Global Accounts comparison for 2014 is 72%. Our effective interest rate for 2014/15 is 4.66% compared with 4.7% sector average per the 2014 Global Accounts. Our 2015 refinancing reduces this to c4.3%.

It is evident that our costs and financial performance ratios compare well with others in the sector, although there is some divergence under certain headings as explained above.

Credit ratings – the HCA Viability Rating and Moody’s

We have a current top V1 Viability rating from the HCA. This is supplemented by a current top G1 rating for governance.

B3Living maintains a Moody’s credit rating. This is unusual for a relatively new association. It is a requirement of our bond investor that we maintain this rating. Being a Moody’s rated association has added benefits in terms of being able to measure and compare our performance with other rated associations. A rating also helps us to obtain a better deal on our borrowing. We are subject to a challenging annual review of our business plan by Moody’s and maintain a prime A3 rating.

Looking at Moody’s latest key ratios (for 2013/ 2014), our 2014/15 operating margin, at 38.7% of turnover, ranks in the medium / high quartile all 47 Moody’s rated associations. We are the strongest rated A3 association in terms of our operating margin.

By way of contrast, our gearing ratio (based on gearing defined by total debt as a portion of the value of social housing assets) is, at 68.3%, one of highest, ranking 43rd out of the 47 Moody’s rated associations. This remains, however, well within our 80% contractual covenant. It is not unusual for fairly new LSVTs to have a high gearing ratio. The ratio, however, strongly demonstrates our commitment to get best value from our asset base in terms of maximising our production of new homes.

Many of our Moody’s finance performance ratios are those associated with an A2 rated association.

HouseMark comparisons

HouseMark data gives us information which we use to understand and improve our business better and compare our performance against others.

The chart below shows cost compared to performance for a range of core activity areas against our bespoke peer group of 24 organisations (agreed in 2015 based on comparable size, location, property mix, and our heavy financial and staff investment in community activity). Cost is based on the total cost per property of delivering the service (including overheads).


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High

Repairs and void costs have historically been comparatively high, but for the third year running we have reduced our costs and our 2014/15 figures show that our direct costs per property are getting much closer to median. Overall our operational cost base has been improving and is also ‘stronger’ against our peers.

In some areas, such as estate services, anti-social behaviour (ASB) and resident involvement, we believe that a moderately higher level of investment brings returns which justify the outlay, such as a significant reduction in incidents of ASB, which impacts on other teams (less vandalism and graffiti on estates reduces community rangers’ expenditure as a result of planned activities and prevention measures such as CCTV cameras); a higher and more meaningful level of resident involvement due to incentivising, and training and developing residents; better looking estates through investment in planting and maintaining shrubs as well as cutting the grass and providing our Ranger (caretaking) services – we have a high percentage of blocks of flats, which increases costs compared to others and the vast majority of the block costs are recouped from service charges.

Low

High

Low

B3Living repairs costs over the last 3 years


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Looking specifically at the areas which show as low performance in the HouseMark VFM chart for 2014/15:

Repairs – our repairs are generally carried out at a time agreed with the tenant, therefore the average completion time indicator is viewed within this context. Satisfaction is taken from the STAR questionnaire’s general repairs satisfaction question – we also carry out our own post-repair survey about a particular repair, and results are consistently high at around 99% (reflecting the quality and customer service).

Lettings – during this period we slightly improved our void turnaround time from the previous year and continued to benefit financially by keeping the work in-house. We reassessed the resources for completing the works and expect to see more significant improvements going forward.

Key financial and service performance indicators

The table following shows how we are performing on specific indicators, and includes the latest benchmarking information for comparison.

Trend against peer group performance key:

Stronger Similar to median Area for improvement

Indicates year of peer group comparison

Indicator Actual 2014/15

Actual 2013/14

Actual 2012/13

Latest peer group median

Trend against peers

Financial indicators

Gearing ratio * 83% 80% 82% 202.2%

Operating margin * 38.7% 33.3% 30.5% 27.2%

Interest cover: Operating surplus before depreciation as % interest payable *

209.2% 169.3% 182.4% 145.1%

Debt per unit * £27,293 £24,250 £24,347 £17,238

Operational costs

Management cost per home * £800 £800 £800 £936

Maintenance cost per home * £900 £928 £1,010 £1,035

Major works cost per home * £1,036 £1,313 £1,270 £1,179

Operational cost per home * £3.2k £3.1k £3.1k £3.2k

Overheads as % of turnover ** 11.7% 13.46% 16.12% 13.37%

Average cost per void ** £2,957.14 £2,523.33 £3,347.52 £3,051.41

Average cost per repair ** £140.52 £151.40 £176.27 £137.58


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Indicator Actual 2014/15

Actual 2013/14

Actual 2012/13

Latest peer group median

Trend against peers

Satisfaction

Overall satisfaction ** 88% 88% 91.3% 87%

Satisfaction with repairs & maintenance ** 77% 79% - 82%

Satisfaction with neighbourhood ** 84% 82% - 85%

Performance

Rent arrears ** 1.52% 1.65% 1.41% 3.03%

Average void relet time (days) excluding major works ** 31.00 31.33 26.56 20.45

Void loss ** 0.76% 0.89% 0.68% 0.59%

Repairs completed at first visit ** 86.% 89% 87% 90%

Average number of repairs per home ** 4.03 4.05 3.61 3.79

* Source HCA global accounts 2013/14 – LSVT statistics ** Source HouseMark annual benchmarking (using bespoke peer group of 24 comparisons)

Financial indicators – our gearing is stronger than our peers, although through growth/borrowing, has increased steadily in recent years. Operating margins continue to improve and are significantly stronger than our peer group. An element of this improvement is attributable to the charging of affordable rents on some homes which, with the removal of grant subsidy, support additional borrowing on new homes. Similarly interest cover on debt repayments is strengthening and looks good in comparison with others. We have developed and acquired new stock to a greater degree than most recent LSVTs and this accounts for our relatively high, and increasing, debt per unit. All of these key financial indicators reflect operations comfortably within contractual funder and investor covenants.

An ongoing focus on VFM and controlling costs is reflected in an improving position on a range of management and maintenance ‘costs per home’ which are all broadly better, or in line, with our peer group. Overheads as a percentage of turnover are looking better, though at a higher level than our peers. This area will show material improvement over 2015/16 and 2016/17 as we work through our mitigation actions in response to the 2015 Summer Budget.

Service indicators – costs have reduced each year, and we are expecting to make further savings in 2015/16 to continue this trend. The ‘reds’ shown in the trend column of the table are for repair satisfaction on the back of a 2% dip (although not seen in our in-house surveys at 99%), first time fixes reducing slightly and although the average number of jobs per property ever so slightly reduced, it was not by as much as our peers. Void turnaround times reflect the 2014/15 position (and having reviewed procedures in this area, we have significantly improved performance during 2015/16), and


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void loss is closely linked to void times. These areas remain a focus going forward as they are key drivers for VFM.

Key corporate VFM targets and performance measures shown for the last 3 years:

VFM targets 2014/15 2013/14 2012/13

Maintain investment in community development at recent levels equal to 2% of income

2% of income 2% of income 2% of income

Ensure that our increases in costs are less than increases in income

Cost increases 0.1%; income increases 8.4%

Cost increases 2.4%; income increases 6.7%

Cost increases of 1.8%; income increases of 5.6%

Meet or better our annual VFM savings target each year

Target £454K Delivery £980K

Target £253K Delivery £1202K

Target £361K Delivery £1,729K

Contain year on year costs per home

Met: £3.2K per home



We have delivered on our key corporate VFM targets for 2014/15 and over the previous two years.


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Summary of VFM gains in 2014/15

We keep a VFM log which staff use to log cashable and non-cashable VFM savings through the year. In 2014/15 £680K of cashable operational savings was logged (£149 per home). In addition we saved £100K on major works (from negotiation of wall insulation subsidies), and £200K on treasury savings arising from refinancing – total £980k (£215 per home).

The log includes areas where substantial savings have been made, but it is also important to track smaller scale savings identified by staff in their day to day work, such as a saving of £3K achieved by making more use of our own internal resources for our staff conference rather than buying in external entertainment.

Summary of total cashable VFM savings for last 3 years

2014/15 2013/14 2012/13

Service area Amount £ per

home

Amount £ per home

Amount £ per home £000 £000 £000

Leaseholders 2 1 54 12 - - Overheads 353 77 67 15 285 64

In house repairs service 150 33 270 60 1,019 229

Housing management & services

175 38 214 47 178 40

Total operational VFM 680 149 605 134 1482 333

Major works 100 22 127 28 120 27

Treasury 200 44 470 104 127 29 Total VFM savings 980 215 1202 266 1,729 389

The gains achieved during 2014/15 will enable us to meet the cost of building 6-7 new homes depending on the level of grant available. The gains also enable us to keep our unit costs steady and at or below inflation

The VFM savings we are delivering can actually meet the annual funding costs of our new homes programme; in fact VFM savings of around £5.5K per year can fund one new home. Historically we have generated sufficient annual VFM savings to fund well in excess of 50 homes per year and will endeavour to maintain this position.


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Achieving VFM priorities – from April 2015

Our response to the Government’s 2015 Summer Budget

Central to our approach to VFM in 2015/16 and beyond is our response to the challenges posed by the Government’s July 2015 Summer Budget which imposed 1% year on year rent reductions on our sector for the four years from April 2016.

Our Board have agreed initial mitigation through a revised version of our 2015/16 budget and an updated business plan. These have identified further income of £560K and cost reductions of £423K for 2015/16 and 2016/17, i.e. £983K additional operating surplus. This is sufficient to cover the cost of 6-7 new homes or, indeed, to fund the cost of servicing debt on more than 100 new homes. We are committed to the process of delivering further mitigation beyond this, this theme being very much central to our VFM strategy for at least the immediate future.

The result of our mitigation so far against the government’s rent reductions has been to maintain core services, development and community investment whilst continuing to deliver a business plan that satisfies the contractual requirements of our funders and investors. Our revised plan also demonstrates that we maintain operating surplus at a level that covers our loan charges at least 1.3 times throughout our plan.

Further challenges arising from Government policy include the assessment of how many of our residents will be affected by the lower benefits cap and the changes to right to buy. These changes are being factored into our revised budget and long term financial plan and into our stress testing scenarios.

In these challenging times, the focus of our VFM Strategy for 2015/16 and beyond will very much be the exploration of continuing mitigation against the rents cuts introduced in the 2015 Summer Budget. Within this context, we will be considering all options for the future and, amongst other things, this will include merger and shared service options.

Further specific actions for 2015/16 (as identified in our 2015/16 VFM Strategy) which will enable us to meet our key priorities are as follows:

(1) Understanding our assets and managing them effectively

• Complete a comprehensive assets and liabilities register to inform disposal, maintenance and investment decisions.

• Proceed with our property disposals programme, to support reinvestment in new homes. This will provide an estimated £2.1 million over the next three years which will both help provide additional homes but also reduce maintenance costs on those properties sold which were considered uneconomic.

• Compare the estimated costs of new development schemes with the actual costs so that we can better understand what drives best value in producing new homes.




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• Look at alternate forms of construction for new homes, supplementing the potential for efficiencies through the training of our SAM staff to support this.

• Further enhance our asset financial appraisal tools with robust measures for monitoring social performance of our assets.

(2) Generating additional income in innovative ways

• Continue the work already started to define our social purpose and align it to possible diversified activity which does not expose our social housing assets to risk.

• Complete negotiations on a £30 million Lloyds Plc revolving credit facility which will facilitate our continuing growth and the provision of new social housing through development and the acquisition of completed homes.

• Consider and explore opportunities for mixed motive development to generate more social housing and to increase the return on our investments

(3) Maximising our current income and proactively supporting residents affected by welfare reform

• Work closely with our residents on financial inclusion initiatives • Target residents most affected by Welfare Reform to offer practical support and advice • Work with partners to develop employment initiatives aimed at getting residents into work or

become ‘work ready’ • Make our systems flexible to accept payments at a time convenient to our residents • Work with residents to agree the balance between cost and service for service chargeable

items

(4) Identifying areas where costs can be reduced and efficiencies made

• Look for ways to reduce overheads, in recognition that this is a way to improve our net income generation and provide more resources for growth.

• Seek to deliver and exceed the specific VFM targets costed into our 2015/16 budget. • Examine the options for possible corporate structures to maximise the saving and recovery of

VFM and to create other efficiencies. • Seek to maintain or improve our prime A3 Moody’s credit and to maintain our prime HCA

governance and viability ratings to enable us to borrow at the keenest possible rates. • Maintain robust viability through rigorous stress testing of our business plan, reflecting

outcomes in our risk management. • Maintain awareness of how we compare with our peers through visits to and liaison with

other associations. • Continue to explore options for savings within our in-house repairs service, including

assessing the viability of it undertaking a wider range of activities. • Encourage staff to identify VFM savings and log these centrally.









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• Ensure that VFM is a key part of all service reviews, including value creation as well as efficiency saving. For this purpose we have a group of staff trained to use an extensive ‘toolkit’ which includes process mapping, value stream mapping etc.

(5) Reviewing our procurement arrangements

• Complete the review of our Procurement Regulations, a follow up to which will include the commencement of a market testing exercise in respect of the use of long-established consultants.

• Consider what work should be provided in-house. • Continue to explore the development and the use of our social enterprise, Jobs at Home, for

the procurement of services at good value and at added value to our community. • Make use of the London Construction Programme’s panel of refurbishment and major works

contractors on their North London Housing OJEU compliant framework. B3Living were involved in the procurement evaluation process at PQQ and tender stage. This framework will bring efficiencies in construction costs for us and Social Vale Act benefits for the business and our community.

• Re-procure the most economically advantageous contracts for cyclical decorations and repairs, fire safety testing, window cleaning, door entry, communal TV and pumps contracts

(6) Demonstrating the social return on our investment

• Continue to use the HACT model to measure the SROI of a range of our projects. • Develop our own in-house methodology as another means of demonstrating social value. • Develop a means of assessing the social impact of improvement works to residents’ homes.

Performance against our 2014/15 actions can be found in Appendix A.






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Appendix A – summary of performance against 2014/15 VFM actions

Action Outcomes (1) Understanding our assets and managing them effectively Embed active asset management to better prepare us for an era of low or zero grant

Financial Appraisal Systems are now installed which enable us to determine the financial contribution of all of our assets; we compare archetypes against each other and outliers from the archetype averages for further investigation and option appraisal; we have an assets and liabilities register in place; we measure overall return on assets based on operating surplus as a % of the cost of our homes, and current return is ahead of the 2013/14 return; during the year we agreed to contribute to funding the development of HACT’s ‘Asset Insight’ tool, however following the withdrawal of two RPs after the budget this project has been put on hold.

Progress negotiations with our local Council on their clawback of sales proceeds on property disposals and right to buy sales

Subject to certain restrictions, the removal of the clawback clause for property disposals has been agreed by the Council. This will enable the delivery of around two new homes for each one disposed of, thus helping to mitigate the impact of falling capital grant. We will also negotiate the possible removal of clawback for RTB sales.

Look at other forms of construction for new homes

We are having discussions with a supplier of ‘flat-pack’ new homes which could possibly be constructed through SAM. There will be some savings in productivity and efficiency, as well as energy savings for residents.

(2) Generating additional income in innovative ways Review wider income generating activities and ways of reducing costs and improving efficiency

Board considered a detailed report and presentation on options for business growth and diversity at their July 2014 meeting. A range of options were discussed and members agreed to further interactive discussion, with executive, which took place on a regular basis through the remainder of 2014/15 and into 2015/16, and discussions are continuing in light of the 2015 summer budget .

(3) Maximising our current income and proactively supporting residents affected by welfare reform

Develop the resident scrutiny panel to ensure the group is involved in VFM discussions and to provide effective challenge

The Resident Panel and Scrutiny Panel both reviewed and contributed to this VFM Self-Assessment prior to its approval by Board, and have also contributed to the VFM strategy. The Scrutiny Panel have applied their understanding of VFM in their recent review of the voids process and an action plan has been agreed to improve the service going forward.

Maintaining customer satisfaction whilst containing unit cost increases

Overall satisfaction with services provided remained at 88% for the years 2014/15 and 15/16, whilst unit costs reduced. In particular, costs for our repairs reduced year on year, whilst our internal satisfaction rating remained broadly similar at 99% from 99.5%; and repairs right first time up from 87% to 95%. Current arrears fell from 1.44% to 1.33%, whist evictions remained low at 4 (5 previous year).


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(4) Identifying areas where costs can be reduced and efficiencies made Complete a project to refinance elements of our loan portfolio, thereby generating very material interest savings

Completed in March 2015. We successfully refinanced our £42 million Santander debt portfolio with a Bond. Despite £15 million in breakage costs on the previous Santander loan, the transaction has a positive net present value calculated at around £5 million over the term. Annual interest cost savings exceed £700K per year.

Look at possible corporate structures to maximise the saving and recovery of VAT

There are options for saving material amounts of non-recoverable VAT through establishing a separate development company are being considered. Proposals from our VAT advisers are being considered and further review of options is continuing in 2015/16

Better understand our overheads and look for ways to make further reductions, in particular reviewing staff benefits and the executive team structure

We negotiated the redundancy of the Deputy Chief Executive in August 2014, his duties being absorbed by other employees. Redundancy costs will pay back by 2015/16 after which there will be annual savings of around £125K on salary costs. We are currently looking at the restructuring of two in-house teams which are likely to produce savings on salary overheads in 2015/16

Maintain or improve our Moody’s A3 credit rating to enable us to borrow at the keenest rates

We have maintained our A3 credit rating and our future prospects for an A2 rating are good (however the rent reduction of 1% for 4 years may affect the credit rating of all housing associations).

Explore how we compare with others through visits to peer group associations and review the make-up of our peer group

A programme of visits to peer group associations has taken place in 2014/15. We found these useful in developing our wider understanding of VFM and in obtaining insights into the approach that others take in delivering VFM, particularly in respect of cost apportionment methods. This has better informed our approach to VFM. For comparison purposes a new peer group has now been agreed (put together by an independent consultant).

Achieve further savings through our Send and Mend service on planned and cyclical maintenance GARY

More efficient ways of working were identified within SAM and produced budget savings of £250K for 2014/15 (of which £150K is identified as VFM) whilst maintaining quality and satisfaction. The capital elements undertaken on kitchens, bathrooms and re-wires were already benchmarked lower than former private sector providers. In 204/15 our Send and Mend team delivered kitchens 2% lower than the previous year and bathrooms 2.5% lower. This saving was achieved prior to the effects of inflation so real savings were even higher year on year.

Explore and understand the reasons for differences between STAR survey results and our own post-repair survey SIMON

Our own survey is done after a repair is completed, whereas STAR asks about repairs within the last 12 months. Tenants view the STAR question in the wider context, including major works, cleaning of communal areas etc. so direct comparisons are difficult. We are moving to a telephone based annual survey which will make it easier to explain the focus of each question and drill down into areas of dissatisfaction. Year on year our in-house survey demonstrates consistently high satisfaction post


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repairs. Improve the interaction between our budgeting and VFM

The style of and detail within the VFM log has been altered to ensure that logged future years VFM savings flow more smoothly in subsequent years’ budgets.

(5) Reviewing our procurement arrangements Retender our insurance arrangements

Achieved with the appointment of THIS insurance brokers in April 2015 (£200k per year savings in insurance premiums)

Continue to explore the development the use of our social enterprise, Jobs at Home, for the procurement of services

We now use Jobs at Home for ground works (shrub beds) and are looking at their supporting our Facilities team for office cleaning.

(6) Demonstrating the social return on our investment Apply our social return on investment methodology to calculate a financial measure of the social, environmental and economic gain on a wider range of projects

Our annual Community Development impact assessment is becoming increasingly sophisticated. We include our own assessment of VFM for each project, and use the HACT wellbeing model for some projects as well.

Documents

Value for Money Self-Assessment 2014/15 Introduction · We have an assets and liabilities register which meets the HCA’s requirements set out in the Governance and Financial Viability