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GROUP FINANCIAL STATEMENTS 2006–07


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EAST THAMES GROUP LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

Contents Board members, senior staff, auditors and solicitors 3 Report of the Board 4–5 Operating and financial review 6–11 Statement of the responsibilities of the Board 11 Report of the auditors 12 Consolidated income and expenditure account 13 Consolidated balance sheet 14 Consolidated cash flow statement 15 Parent income and expenditure account 16 Parent balance sheet 17 Parent cash flow statement 17 Notes to the financial statements 18–41

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East Thames Group Limited Board members, senior staff, auditors and solicitors

Board

Registered office

Chairman – Dr R. Chilton

3 Tramway Avenue Stratford LONDON E15 4PN

Vice-Chair – Mr J. Mallender (resigned 31 March 2007) Treasurer – Mr C. Villiers (due to retire September 2007) Other members Mr O. Olanrewaju (appointed Vice-Chair 1 April 2007) Mr B. Robertson Mr J. Norman

Auditors Grant Thornton UK LLP Daedalus House Station Road CAMBRIDGE CB1 2RE

Mr G. McLeary (resigned 31 March 2007) Mr C. Dankwa (resigned 31 March 2007)

Solicitors

Mr D. Edwards

Devonshires Salisbury House London Wall LONDON EC2M 5QY

Mr D. Goodman Mrs L. Perham Ms J. Holmes (appointed 1 April 2007) Mr A. Newell (appointed 1 April 2007) (Treasurer from Sept 2007) Ms D. Sorkin (appointed 1 April 2007) Mr C. Ofili (appointed 1 April 2007)

Trowers and Hamlins Sceptre Court 40 Tower Hill LONDON EC3N 4DX

Mr A. Kamalondo (resigned May 2007) Bankers Senior staff Group Chief Executive – Ms J. Barnes Deputy Chief Executive – Mr M. Heys Group Director of Development – Mr G. Pearce

Barclays Bank plc Level 28 1 Churchill Place Canary Wharf LONDON E14 5HP

Group Director of Corporate Services – Ms D. Boakye Group Director of Business Services – Ms J. Kutner Group Company Secretary – Mr H. Potter Registered Charity 1084952 Registered under the Companies Act 1985 4091100 Registered by the Housing Corporation No. LH 4309

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Report of the Board The Board presents its report and audited financial statements for the year ended 31 March 2007.

Legal status East Thames Group Limited is a charity, registered under the Companies Act 1985 and is a Registered Social Landlord under the Housing Act 1996. On 1 April 2001 it assumed responsibility as the parent company for four main operating subsidiaries, East Homes Limited, East Living Limited, East Choice Limited, and East Potential. On 31 December 2001, it assumed responsibility as the parent company for East Street Services Limited, a company established to undertake the Group’s non-charitable activities. On 10 February 2003 East Regen Limited and East Treasury Limited were incorporated as wholly owned subsidiaries within the Group. East Regen Limited commenced trading on 1 April 2005 and East Treasury Limited on 18 March 2006. On 6 April 2006 East Choice Limited transferred its assets and liabilities to East Homes Limited.

Principal Activities and Review of the year These are outlined in the Operating and Financial Review.

Performance for the year The Group achieved a surplus for the year of £6.9 million (2006: £4.0 million) before breakage costs of £12.6 million (2006: £2.3 million) incurred in refinancing the loans portfolio. This has resulted in a deficit for the year of £5.7 million (2006: surplus £1.7 million) which, following transfers from the revaluation and designated reserves of £3.6 million (2006: £1.9 million) has resulted in reducing revenue reserves to £51.7 million (2006: £53.8 million). Restricted, designated, and consolidated reserves total £3.4 million (2006: £5.1 million). Following the revaluation of the Group’s properties the revaluation reserve now stands at £224.4 million (2006: £220.6 million).

Post balance sheet events Arrangements are being put in place for East Street Services Limited to become a subsidiary of East Homes Limited. Other than this there have been no events since the year end that have had a significant effect on the Group’s or company’s financial position.

Going concern The Board has a reasonable expectation that the Group and the company has adequate resources to continue in operational existence for the foreseeable future, being a period of 12 months from the date on which the report and financial statements were signed.

Disabled employees Applications for employment from disabled persons are given full and fair consideration for all vacancies, having regard to their particular aptitude and abilities. In the event of employees becoming disabled, every effort is made to retain them in order that their employment within the organisation may continue. It is the policy of the Group that training, career development and promotion opportunities should be available to all employees.

Health and Safety The Group takes its responsibilities for Health and Safety very seriously and has established a training and implementation programme, led by a health and safety committee dedicated to this topic.

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Employee involvement One of the strengths of the Group lies in the quality of its employees. One of the key factors in its ability to meet its objectives and its commitments to its tenants in an effective and efficient manner is the contribution of its employees. The Group has continued its practice of consulting and keeping employees informed on matters affecting them and on the progress of the Group. This is carried out in a number of ways including a formal forum for consultation, departmental meetings and a variety of newsletters.

Donations The Group made charitable donations during the year of £4,620. No donations were given to charities of which Board members are Trustees.

Pensions The Chief Executive is an ordinary member of the pension scheme and has a contractual arrangement covering additional voluntary contributions (AVC’s). There are no other enhanced pension arrangements to which East Thames Group Limited or any members of the Group make a contribution.

Internal Controls The Board has overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness. This applies to all companies within the East Thames Group. The Board recognises that no system of internal control can provide absolute assurance or eliminate all risk. The system of internal control is designed to manage risk and to provide reasonable assurance that key business objectives and expected outcomes will be achieved. It also exists to give reasonable assurance about the preparation and reliability of financial and operational information and the safeguarding of the Group’s assets and interests. In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls which are embedded within the normal management and governance process. This approach includes the regular evaluation of the nature and extent of risks to which the Group is exposed and is consistent with Turnbull principles as incorporated in the Housing Corporation’s circular R2-25/01: Internal Controls Assurance. The process adopted by the Board in reviewing the effectiveness of the system of internal control, together with some of the key elements of the control framework includes; Identification and evaluation of key risks Management responsibility has been clearly defined for the identification, evaluation and control of significant risks. The Group has an overall risk management strategy which is reviewed annually and produces Group and individual subsidiary risk maps which identify key risks linked to our strategic plan. These risks are scored in terms of impact (including reputational image) and probability both in terms of the initial risk and the residual risk once adequate control measures are in place. In November 2006 an external review of the Group’s risk management framework and individual risk maps was undertaken which showed that in their entirety the Group had covered the vast majority of risks which are thought to affect the sector. Where risks were thought to have been omitted action has been taken to incorporate these within our risk mapping process.


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There is a formal and ongoing process of management review in each area of the Group’s activities. The process is co-ordinated through a quarterly reporting framework to the Group Risk Management and Audit Committee/Boards which review changes to the risk map on an ongoing basis. The Group Executive and Officer Risk Management Panel regularly consider reports on significant risks facing the Group. The Group Chief Executive/relevant Managing Director is responsible for reporting to the respective Board(s) any significant changes affecting key risks. Monitoring and corrective action A process of control self assessment and regular management reporting on control issues provides hierarchical assurance to successive levels of management and to the Board. This process continues to be developed to ensure a rigorous approach and includes action for ensuring that corrective action is taken in relation to any significant control issues. Control environment and control procedures The Board retains responsibility for a defined range of issues covering strategic, operational, financial and compliance issues including treasury strategy and new investment projects. The Board has adopted the National Housing Federation 2004 Code of Governance – Competence and Accountability. Adherence to the code was reviewed in 2006–07 to ensure that the Group continued to comply and was at the forefront of best practice. It is used as a basis for the Group’s policies with regard to quality, integrity and ethics and is supported by a framework of policies and procedures, with which employees must comply. These cover issues such as delegated authority, segregation of duties, accounting, treasury management, health and safety, data and asset protection and fraud prevention and detection. Information and financial reporting systems Financial reporting procedures include detailed budgets for the year ahead and forecasts for subsequent years. These are reviewed and approved by the Board. The Board also regularly reviews key performance indicators to assess progress towards the achievement of key business objectives, targets and outcomes. In 2005–06 the Group introduced a balanced scorecard approach designed to measure the critical success factors of the business. During the course of 2006–07 this system has continued to be refined to ensure that the Board receives the key information it needs to properly oversee business activities. Sources of assurance There are a number of internal and external sources of assurance which have been used in compiling this statement some of which are mentioned above. In summary these sources are:

• quality management systems such as Chartermark and Investors in People • key performance indicators linked to business plans The Board has received the Group Chief Executive’s annual report, has conducted its annual review of the effectiveness of the system of internal control and has taken account of any changes needed to maintain the effectiveness of the risk management control process. The Board confirms that there is an ongoing process for identifying, evaluating and managing significant risks faced by the Group. This process has been in place throughout the year under review, up to the date of the annual report, and is regularly reviewed by the Board.

Auditors RSM Robson Rhodes LLP (“Robson Rhodes”) merged its audit practice with that of Grant Thornton UK LLP (“Grant Thornton”) with effect from 2 July 2007, with the successor firm being Grant Thornton. Robson Rhodes resigned as auditors on 4 July 2007 creating a casual vacancy, which the directors have filled by appointing Grant Thornton. A resolution to reappoint Grant Thornton as auditors of the company will be proposed at the forthcoming Annual General Meeting. Disclosure of information to auditors At the date of making this report the members and directors, as set out on page 3, confirm the following: • so far as each member and director is aware, there is no relevant information needed by the Group’s auditors in connection with preparing their report of which the Group’s auditors are unaware, and • each member and director has taken all the steps that they ought to have taken as a member or director in order to make them aware of any relevant information needed by the Group’s auditors in connection with preparing their report and to establish that the Group’s auditors are aware of that information. The Report of the Board was approved by the Board on 8 August 2007 and signed on its behalf by:

Henry Potter – Group Company Secretary

• Board/Group Risk Management and Audit Committee oversight of the organisation’s business • management assurances • management reports on operational and financial matters • risk management activity • internal audit which has been significantly strengthened during the course of the year by bringing the service in-house and thereby allowing more in-depth reviews of the controls in place

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Operating and financial review Principal activities East Thames Group Limited The Group is a Registered Social Landlord and a registered charity. Its principal activities are the provision of central services to its operating subsidiaries, development of social housing and asset management. The three main operational subsidiaries are: • East Homes Limited – a Registered Social Landlord and a charitable Industrial and Provident Society that provides social housing including low-cost home ownership; • East Living Limited – a charitable Industrial and Provident Society that provides care and supported housing; and • East Potential – a registered charity that manages foyers and neighbourhood regeneration programmes on behalf of the Group. Four other subsidiaries provide services for the Group: • East Foundation Limited – a registered charity established in 2006 that funds projects to help build sustainable communities; • East Regen Limited – a non-charitable company established in 2003 that provides management and development services; • East Street Services Limited – a non-charitable company established in 2001 that undertakes commercial activities; and • East Treasury Limited – a non-charitable company established in 2003 that raises finance and provides treasury services. The first parent was formed in 1979 by merger of three housing associations in east London. Its first subsidiary, East Choice Limited, was formed in 1981. Two further subsidiaries, currently named East Living Limited and East Potential, became subsidiaries in 1995 and 1997 respectively. East Thames Group Limited was formed in 2001 as a new Group parent, with the former parent becoming what is today known as East Homes Limited. East Choice merged with East Homes in 2006. The Group is a major developer of new affordable housing and is one of the associations selected by the Housing Corporation as development partners. During the year, we completed 544 new homes; a further 1,167 were on site. Lend Lease and its partners First Base and East Thames Group were selected by London & Continental Railways and the Olympic Delivery Authority in March 2007 as preferred Development Partner for Zones 2-7 of Stratford City – a remit which includes the Athletes Village. East Foundation started its activities during the year, providing grants in support of projects which help to relieve social exclusion, enhance the sustainability of neighbourhoods and improve the quality of life within them. East Homes Limited During its first full year since merging with East Choice, we have successfully reorganised our staffing structures. We estimate that this has resulted in efficiency savings of the order of £400,000. There are now two regional operations, each with a Regional Committee, which has improved local accountability.

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We continue to make progress towards our challenging growth targets, with 544 new homes handed over by the Group’s development team during the year. These included Tanner Street, the Housing Design Award winning development of 165 mixed tenure homes in Barking, and the associated 10-storey landmark development in Queens Road. Our biggest estate will be ‘East One’. This is a 524 home project at Harford Street, Stepney, currently being developed by East Thames Group and Bellway Thames Gateway South. It will be a mixed tenure estate, involving Newlon Housing Trust and LABO, a BME-led housing association. The first 25 homes to be completed were handed over to LABO in March. Other significant completions during the year included Kitchen Court, a 40 home development at the Leyton Orient football ground in east London, and Ranelagh Road in Stratford. Ranelagh Road has a mixture of general needs homes, move-on flats for young people leaving East Potential’s foyers and a learning disabilities scheme managed by East Living. East Living Limited We opened a major new scheme in Ranelagh Road in Newham for people with learning disabilities. We also won the contract to provide care services at Paines Brook Court in Havering. The scheme has 64 self-contained flats for older people with physical, mental or learning disabilities. In line with the ethos of Care in the Community, we introduced our HOLD (Home Ownership for people with Learning Disabilities) project. This enabled two scheme residents to each part buy, part rent a home of their own within the community. We are looking to expand HOLD in the future. We continue to seek ways to improve our services and the value for money they offer. We have started a trial of high technology equipment which may enable us to provide a better service, for example door mats which notify staff when someone goes into or out of a flat. This system will alert staff if a resident is out for an unexpectedly long period. A review of our services and their provision resulted in savings of around £200,000 per year. We also started a domiciliary care service which will improve the value for money offered by our support service for people living in the community. We involve residents as much as we can and, following resident involvement in two of our conferences, we are proposing a ‘Customer Panel’ to help ensure our services continue to meet the needs of their users. East Potential Our first foyer, Focus E15, opened in Stratford in 1996. To celebrate the anniversary, we worked with young people to prepare and deliver two major shows, held in Stratford Circus and East Wintergarden, Canary Wharf. The young people worked with help and advice from a range of professional artists to devise the shows. Towards the end of the financial year, we were delighted to receive confirmation of a Housing Corporation grant of £14 million for a new foyer in Barking. The foyer, which we have been planning for a while, is now under construction. It will accommodate and support up to 116 disadvantaged young people at a time.


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As part of our community regeneration role, we have set up a Sustainable Neighbourhood team. When new developments are proposed, the team works with the Group’s development department to explore and seek to resolve service and other issues in the wider neighbourhood. We are determined that the 2012 Olympics should leave a lasting legacy for local communities. To this end, we are expanding projects that empower socially excluded residents. These include education, training and employment opportunities which helped more than 300 local people during 2006–07.

Key aims

Strategies

• To influence local regional and national thinking, policies and strategies

• We will contribute to key local partnerships and planning forums

Key aims

Strategies

• To provide high quality homes and services that meet the needs of our customers.

• Continue to find innovative solutions to meet specific customer and housing needs and to improve the quality of our current services • Deliver sustainability in the neighbourhoods in which we operate • Help meet the needs of the large and growing child and youth population in east London • Continue to develop a wide range of housing for different income groups, including giving our existing residents more opportunities to move to new homes as their needs change • Identify and pursue strategic opportunities for growth and stock transfer across east London and Essex

• To ensure that our customers can shape our services.

• We will improve our performance by giving opportunities to residents to define service standards and priorities, provide better value for money in all our services, set development standards for new homes and the improvement of existing homes, influence our community and economic programmes and make our neighbourhoods a better place to live • Actively seek ways of getting feedback from those residents and service users whose voices are not normally heard • Work with strategic and local agencies to help them achieve their objectives in the neighbourhoods in which we work

• Build local community networks to inform, shape, and reinforce local agendas • Promote innovative solutions using flagship projects, services and research

Objectives and strategies Our mission is “to make a positive and lasting contribution to the neighbourhoods in which we work”. We have five key aims underpinning this mission and key actions have been developed to ensure that we are able to deliver against this strategic plan.

• Target and shape regional and national agendas to benefit our neighbourhoods

• Develop staff and Board members as ambassadors • Developing well-informed, committed, and enthusiastic staff

• We will communicate effectively so staff understand and are aware of what we do, share our future plans and the issues that effect our business • Further develop staff to maximise their skills and creativity in an organisation with a culture of integrity, to be positive agents for change, promote the advantages of working in a multi-cultural area, and learn and innovate using internal and external knowledge and experience • Create a workplace culture that makes staff feel as special as the group expects them to make our customers feel • Maintain a working environment conducive to attracting and retaining the highest quality staff

• Actively using • Optimise the use of Group assets and revenue our financial and streams to ensure the most effective investment in organisational new development, our existing stock and services strength • Improve the manner in which we manage risk while continuing to be risk aware • Exploit the knowledge, skills and experiences from across the Group to deliver our mission • Continue to improve business performance and efficiency • Continue to review our governance structures as appropriate to ensure that they are utilised to best effect • Use our organisational strength to contribute to the success of the 2012 Olympics and its legacy

• Continue to develop effective partnerships, achieving more as a result of these

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Operating and financial review (continued) Performance, development and continuous improvement The Group Executive and the Board have put in place a comprehensive process to monitor the performance of the Group against a set of key results, critical success factors and key performance indicators. The results are summarised on a Group ‘Master Performance Dashboard.’ The Board agrees targets each year that are designed to manage development and deliver continuous service improvement. The Board receives a performance management pack monthly which indicates the Group’s performance against targets and simply and effectively highlights the current performance and the trend, giving each area a “green”, “amber”, or “red” assessment. Those areas assessed as “red” are monitored closely and are subject to a detailed review by the Board each quarter.

Risks and uncertainties The Group Board and Group Risk Management and Audit Committee use a number of internal and external processes to manage risk. Management assurances Annually senior managers complete an internal controls sign off memorandum confirming their understanding of their objectives and compliance with internal control procedures. Management reports on operational and financial matters Boards and the Committee receive regular reports on business planning incorporating long term financial plans and forecasts, treasury management policies and strategies, including cash flow monitoring and control and interest management. Policies and strategies have also been considered on a range of issues ranging from human resources and diversity issues to risk management. Satisfaction survey information derived from residents and employees has also been considered. Risk Management Activity During the year the Board considered our comprehensive Group Risk Management Strategy, a Group wide risk map and individual subsidiary risk maps. The risk maps assess risk on the basis of impact (including reputational risk) and probability. A system of measuring residual risk scores is used (i.e. those scores after controls are in place) and all scores over 100 are reviewed by the Group Risk Management and Audit Committee and individual Boards on a quarterly basis. Officer Risk Management Panel An Officer Risk Management Panel is also in place which considers all items of risk in terms of new activity and also any development schemes which fall outside of the agreed template.

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Financial position Results The results of the key operations are set out below: Turnover 2007

2006

Operating Surplus 2007

2006

£m

£m 11.6

restated

£m

£m

General needs

36.2

35.8

9.3

Special needs accommodation

17.7

17.2

0.7

0.2

6.6

4.7

1.9

0.7

(0.1)

(0.1)

Shared ownership accommodation Temporary accommodation

13.3

16.1

Properties developed for sale to other Registered Social Landlords

7.8

5.6

Other

3.0

1.6

(3.7)

(2.8)

Total

84.6

81.0

8.1

9.6

The Group income and expenditure account and balance sheet are set out on pages 13 and 14 and the following paragraphs highlight key features of the Group’s financial position at 31 March 2007. The reason for the restatement of the comparative figures is explained in the Accounting Policies note 1, n(i). Accounting policies The Group’s principal accounting policies are set out on pages 18 and 19 of the financial statements. The policies that are most critical to the financial results relate to accounting for housing properties and include: capitalisation of interest and development administration costs; deduction of capital grant from the cost of assets; housing property depreciation; and treatment of shared ownership properties. Each of these policies has remained unchanged during the period under review. Housing properties At 31 March 2007 the Group owned or managed 11,300 housing properties (2006: 11,404). The valuation shown in the balance sheet of properties owned by us (after depreciation and capital grant) was £565.0 million (2006: £517.7 million). The Board appointed professional valuers to value the Group’s housing properties as at 31 January 2007. Our investment in housing properties this year was funded through a mixture of social housing grant, loan finance and working capital. The Group treasury policies are considered below.


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Pension costs The Group participates in two pension schemes, the Social Housing Pension Scheme (SHPS) and for a small number of people, the NHS pension scheme for England and Wales. Note 8 to the accounts gives a full explanation of the workings of the schemes and their funding position. At the end of the year there were 318 members of SHPS compared to 311 at 31 March 2006. SHPS is a multi-employer defined benefit scheme. As with many other schemes of this type, there is a funding deficit which may require additional contributions in future years in order to meet its liabilities. The Group has been notified that its share of the estimated employer debt if the scheme were to have ceased on 31 March 2007 is £27.2 million. This is only an indication of the potential debt at that point in time given certain assumptions, but nevertheless indicates that there may well be significant costs of supporting benefits for existing and new members in the future. In order to start to make up for the deficit, contributions to SHPS for all members were increased by 4.4% of pensionable salary from 1 April 2007. East Thames Group decided to increase its employer contributions by 2.4% to 14.1% with employees bearing the balance of the increase. The Group is actively considering a range of options in order to contain future costs of the provision of pensions to its employees. It is consulting with employees on this issue.

A HACO £25 million bond for which interest was fixed at 10.625% and THFC loans totalling £20 million were repaid in 2006–07 as part of the refinancing of existing loans. The cost of breaking these loans makes up the majority of the Exceptional Item of £12.6 million shown in the accounts. A new treasury management policy has been put in place this year. It contains adequate controls to protect the Association’s assets. The purpose of treasury management within East Thames Group is to minimise the cost of borrowing and to reduce exposure to risks. 2007

2006

Maturity of loans

£m

£m

Within one year

5.0

0.7

1.3

Between one and two years Between two and five years

0.1

2.5

After five years

291.4

246.2

Total

296.5

250.7

There are further details of debts in Note 20 to the accounts.

Capital structure and treasury policy During the previous year, new loan arrangements between East Treasury Limited (a member of East Thames Group Limited) Nationwide, Barclays and Barclays Syndicate totalling £400 million were agreed. The purpose of this facility is to refinance the vast majority of our existing loans portfolio and to provide significant funds for development and other new business initiatives. At 31 March 2007 the Group had borrowed £295 million for this purpose. Of this, £289 million is from the new facility. Interest is payable on the new facility borrowings at fixed rates varying from 4.02% to 4.135% on £81.5 million and at rates linked to LIBOR on the remaining £207.5 million.

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Operating and financial review (continued) Group highlights, five-year summary For the year ended 31 March

2007

2006 restated

2005

2004

2003

Group income and expenditure account (£’000) Total turnover

84,635

81,021

72,584

66,700

55,521

Income from lettings

73,819

73,837

71,071

63,758

53,550

8,129 (12,579)

9,574 (2,340)

9,563 –

10,555 –

11,896 –

(5,662)

1,703

4,269

8,128

4,644

Operating surplus Exceptional item – Breakage costs Surplus for the year transferred to reserves Group balance sheet (£’000) Housing properties, net of depreciation SHG and other capital grants

1,039,597 (474,613)

966,025 (448,291)

885,217 (439,274)

828,183 (424,544)

696,464 (411,860)

Housing properties, net of depreciation and grants Other fixed assets

564,984 25,934

517,734 15,158

445,943 11,709

403,639 8,515

284,604 5,806

Fixed assets net of capital grants and depreciation

590,918

532,892

457,652

412,154

290,410

(4,495)

17,726

Net current (liabilities)/assets

(7,726)

9,593

(14,909)

Total assets less current liabilities

583,192

542,485

442,743

407,659

308,136

Loans (due over one year) Provision for liabilities and charges Other long-term liabilities

289,678 – 14,052

249,115 100 13,828

167,361 100 10,234

153,734 100 11,045

165,513 100 7,792

Reserves

99 3,011 51,966 224,386 279,462

1,784 3,011 54,031 220,616 279,442

1,791 3,492 50,432 209,333 265,048

2,912 1,953 45,779 192,136 242,780

3,240 2,069 37,185 92,237 134,731

583,192

542,485

442,743

407,659

308,136

: restricted : designated : revenue : revaluation : total

Accommodation figures Total housing stock owned or managed at year end (number of dwellings): Social housing

9,809

9,810

9,798

9,769

9,551

Non-social housing

1,491

1,594

1,503

1,421

1,436

11,300

11,404

11,301

11,190

10,987

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2007

2006

2005

2004

2003

restated Statistics Surplus for the year before exceptional item as % of turnover

8.2%

5.0%

6.5%

12.2%

8.4%

Surplus for the year before exceptional item as % of income from lettings

9.4%

5.5%

6.6%

12.7%

8.7%

Rent losses (voids and bad debts as % of rent and service charges receivable)

3.9%

3.5%

3.8%

3.7%

5.5%

Rent arrears (gross arrears as % of rent and service charges receivable)

6.1%

6.7%

6.6%

7.6%

11.5%

Interest cover (surplus before interest payable divided by interest payable and capitalised interest)

1.7

1.4

1.3

1.9

1.4

Liquidity (current assets divided by current liabilities)

0.8

1.4

0.6

0.8

2.0

39.5%

34.9%

25.7%

23.0%

28.4%

£27,228

£30,267

£27,517

£24,903

£13,775

Gearing (total loans as % of capital grants plus reserves) Total reserves per home owned

The reason for the restatement of the 2006 comparative figures is explained in the Accounting Policies.

Statement of the responsibilities of the Board Statement of the responsibilities of the Board for the report and financial statements The Board is responsible for preparing the report and financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Companies Act 1985 and registered social landlord legislation in the United Kingdom require the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and the company at the end of the year and of the surplus or deficit of the Group and the company for the year then ended. In preparing those financial statements the Board is required to: • select suitable accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; and • follow applicable United Kingdom Accounting Standards and the Statement of Recommended Practice: “Accounting by Registered Social Landlords” (Update 2005), subject to any material departures disclosed and explained in the financial statements.

The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and the company and enable it to ensure that the financial statements comply with the Companies Acts 1985, paragraph 16 of Schedule 1 to the Housing Act 1996 and the Accounting Requirements for Registered Social Landlords General Determination 2006. It is also responsible for safeguarding the assets of the Group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board is responsible for ensuring that the Report of the Board is prepared in accordance with the Statement of Recommended Practice: “Accounting by Registered Social Landlords” (Update 2005). The Board is responsible for the maintenance and integrity of the corporate and financial information on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

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Independent Auditors’ Report to the Members of East Thames Group Limited We have audited the Group and association financial statements of East Thames Group Limited for the year ended 31 March 2007, which comprise the Group and association income and expenditure accounts, the Group and association balance sheets, the Group and association cash flow statements, the Group statements of total recognised surpluses and deficits and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the association’s members, as a body, in accordance with regulations made under section 235 of the Companies Act 1985. 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 auditors’ 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 The responsibilities of the board for preparing the report and financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of responsibilities of the Board for the financial statements. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985, the Housing Act 1996 and the Accounting Requirements for Registered Social Landlords General Determination 2006. We also report to you if, in our opinion, the Report of the Board is consistent with the financial statements. The information given in the Report of the Board includes the specific information presented in the Operating and Financial Review that is cross-referred from the Business Review section of the Report of the Board. In addition, we report to you if, in our opinion, the association has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read the other information accompanying the financial statements and consider whether it is consistent with the audited financial statements. The other information comprises only the Report of the Board and the Operating and Financial Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

12

Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the board in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and association’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: • the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of affairs of the Group and association as at 31 March 2007 and of the Group’s deficit and the association’s surplus for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985, the Housing Act 1996 and the Accounting Requirements for Registered Social Landlords General Determination 2006; and • the information given in the Report of the Board is consistent with the financial statements.

Grant Thornton UK LLP Chartered Accountants and Registered Auditors Cambridge, England


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Consolidated income and expenditure account for the year ended 31 March 2007

restated Note

2007

2006

£’000

£’000

Turnover: continuing activities

2

84,635

81,021

Operating costs

2

(76,506)

(71,447)

8,129

9,574

4

8,828

4,357

Operating surplus: continuing activities Surplus on sale of fixed assets – housing properties Net interest payable and similar charges

7

(10,040)

(9,888)

Exceptional item – Breakage costs

7

(12,579)

(2,340)

(22,619)

(12,228)

(5,662)

1,703

(Deficit)/surplus for the financial year

The notes on pages 18 to 41 form part of these financial statements. The reason for the restatement of the comparative figures is explained in Note 1 Accounting Policies (n)(i).

Consolidated statement of total recognised surpluses and deficits for the year ended 31 March 2007

Note

(Deficit)/surplus for the financial year Unrealised surplus on revaluation of housing properties Total recognised surpluses for the year

Note of historical cost surpluses and deficits for the year ended 31 March 2007 Reported (deficit)/surplus on ordinary activities Excess of actual depreciation over historical cost depreciation Realisation of property revaluation surpluses

24

2007

2006

£’000

£’000

(5,662)

1,703

5,682

12,691

20

14,394

2007

2006

£’000

£’000

(5,662)

1,703

461

488

1,451

920

Historical cost (deficit)/surplus on ordinary activities before taxation

(3,750)

3,111

Historical cost (deficit)/surplus for the year after taxation

(3,750)

3,111

2007

2006

Reconciliation of movements in Group’s funds for the year ended 31 March 2007 Opening total funds Total recognised surpluses relating to the year Closing total funds

£’000

£’000

279,442

265,048

20

14,394

279,462

279,442

13


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Consolidated balance sheet at 31 March 2007

2007

2006

Note

£’000

£’000

Housing properties at valuation

10

564,984

517,734

Other fixed assets

11

Tangible fixed assets 25,934

15,158

590,918

532,892

Investments Cost of HomeBuy and Starter Home Initiative

10

31,706

35,945

Less: Social Housing Grant

10

(31,706)

(35,945)

Current assets Properties for sale

13

12,514

18,924

Debtors

14

7,271

6,662

Investments

12

1,685

Cash at bank and in hand

15

8,199

7,634

27,984

34,905

(35,710)

(25,312)

(7,726)

9,593

Creditors: amounts falling due within one year

16

Net current (liabilities)/assets Total assets less current liabilities

583,192

542,485 262,943

Creditors: amounts falling due after more than one year

17

303,730

Provision for liabilities and charges

22

100

303,730

263,043

Capital and reserves Share capital

23

Revenue reserve

24

51,703

53,768

Designated reserve

24

3,011

3,011

Restricted reserve

24

99

1,784

Consolidation reserve

24

263

263

Revaluation reserve

24

224,386

220,616

279,462

279,442

583,192

542,485

Consolidated funds

The financial statements were approved by the Board on 8 August 2007 and signed on its behalf by:

Robert Chilton

Charles Villiers

Henry Potter

Chairman

Treasurer

Group Company Secretary

14


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Consolidated cash flow statement for the year ended 31 March 2007 Net cash flow from operating activities

2007

2006

Note

£’000

£’000

27

19,221

5,277

Returns on investments and servicing of finance Interest received

525

1,105

Interest paid

(12,677)

(13,177)

Breakage costs paid

(13,860)

(2,340)

Net cash outflow on servicing of finance

(26,012)

(14,412)

Purchase and construction of housing properties

(78,005)

(101,629)

Purchase of other fixed assets

(11,714)

(4,852)

Social Housing Grant received

15,526

26,643

Social Housing Grant repaid

(3,737)

Other capital grants received

1,089

Capital expenditure and financial investments

– 381

Other capital grants repaid

(1,575)

Proceeds of first tranche sales

19,120

11,056

1,473

Proceeds of HomeBuy Sales of housing properties

17,255

11,459

Sales of Starter Homes Initiatives

3,799

Proceeds from disposal of investments

1,685

Cash outflow from investing activities

(35,084)

(56,942)

Cash outflow before financing

(41,875)

(66,077)

Financing Housing loans received Housing loans repaid Loan issue costs paid Cash inflow from financing

197,342 (128,032)

(1,020)

(437)

28

44,876 –

2

28

3,001

2,798

Corporation Tax Increase in cash in the year

91,724 (45,828)

68,873

15


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Parent income and expenditure account for the year ended 31 March 2007

2007

2006

Note

£’000

£’000

Turnover: continuing activities

2

18,011

14,764

Operating costs

2

(17,123)

(12,595)

Operating surplus: continuing activities

888

Net interest receivable

7

Surplus on ordinary activities

888

2,169

The financial statements were approved by the Board on 8 August 2007 and signed on its behalf by:

Robert Chilton

Charles Villiers

Henry Potter

Chairman

Treasurer

Group Company Secretary

16

2,169


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Parent balance sheet at 31 March 2007 Tangible fixed assets

2007

2006

Note

£’000

£’000

11

22,407

12,483

14 16

10,920 (27,326)

38,289 (45,659)

(16,406)

(7,370)

6,001

5,113

Current assets Debtors Creditors: amounts falling due within one year Total assets less current liabilities Capital and reserves Share capital

23

Revenue reserve

24

6,001

3,428

Restricted reserve

24

1,685

Designated reserve

24

6,001

5,113

The financial statements were approved by the Board on 8 August 2007 and signed on its behalf by:

Robert Chilton

Charles Villiers

Henry Potter

Chairman

Treasurer

Group Company Secretary

Parent cash flow statement for the year ended 31 March 2007 Net cash flow from operating activities

2007

2006

Note

£’000

£’000

27

13,020

2,424

(10,888)

(2,939)

Capital expenditure and financial investments Purchase of fixed assets Capital grant received

– (10,888)

Increase/(decrease) in cash in the period

28

2,132

381 (2,558) (134)

17


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Notes to the financial statements 31 March 2007 1.

Accounting Policies

(a) Basis of accounting The financial statements of the parent company and the Group are prepared under the historic cost convention (as amended by the revaluation of the Group’s housing assets) in accordance with the Companies Act 1985, the Housing Act 1996 and comply with Accounting Requirements for Registered Social Landlords General Determination 2006. Applicable accounting standards and statements of recommended practice have been followed.

d) Depreciation of housing properties Freehold land, shared ownership properties and assets held in the course of completion are not depreciated. Depreciation is charged so as to write down the value of freehold housing properties other than freehold land to their estimated residual value on a straight line basis over their remaining expected useful economic lives as follows: Houses

100 to 150 years

Low level flats

100 to 150 years

Blocks over four floors

60 years

Basis of consolidation The Group financial statements consolidate the financial statements of East Thames Group Limited and its operating subsidiaries East Homes Limited, East Foundation Limited, East Street Services Limited, East Living Limited, East Potential, East Regen Limited and East Treasury Limited.

These useful economic lives apply equally to the Group’s rented and care stock of housing properties. Shared ownership properties are not depreciated because the shared owner has significant equity in the property and is responsible for its maintenance.

(b) Turnover Turnover represents rental and service charge income from tenants, management fees, sales of properties developed for other Registered Social Landlords and certain revenue grants.

(e) Social Housing Grant Social Housing Grant (SHG) is payable by the Housing Corporation and is utilised to reduce the capital costs of a scheme to a value which may be supported by rental income. Where SHG is received in advance of aggregate expenditure it is disclosed as a short-term creditor.

(c) Housing properties Housing properties represent the Group’s investment in properties for rent and properties subject to shared ownership leases. Completed housing properties held for letting are stated at Existing Use Value for Social Housing (EUV-SH). Shared ownership properties are stated at Existing Use Value for Social Housing (EUV-SH) less the Net Present Liability to repay Social Housing Grant (SHG). Housing properties under construction are stated at cost less related SHG and other capital grants. Cost comprises the cost of acquiring land and buildings, development costs, rehabilitation costs, attributable interest charges incurred during the development period and the capital element of expenditure incurred in respect of the major repair programmes of stock modernisation and estate improvement. The capital element of expenditure is determined by deciding if the works result in an enhancement of economic benefits of the asset – eg, an increase in the net rental stream over the life of the property. An increase in the net rental stream may arise through an increase in the net rental income, a reduction in future maintenance costs or a significant extension of the life of the property. Development and modernisation costs include the capitalisation of the Group’s own directly related employee costs from the direct labour force involved in the development process and directly attributable development management costs and other direct costs. The cost of shared ownership properties is stated net of proceeds of first tranche sales. Land donated by public authorities is brought into cost at market value at the time of the donation.

18

When the SHG is retained following the disposal of property, it is shown under the Disposal Proceeds or Recycled Capital Grant Funds in creditors. SHG is repayable in certain circumstances. When SHG becomes repayable it is included as a current liability until it is repaid. The repayment of SHG is generally subordinated to the repayment of housing loans, as agreed with the Housing Corporation. (f) Other grants Other grants include grants from local authorities and other organisations, primarily the London Docklands Development Corporation. Capital grants are treated in the same way as SHG and include amounts attributable to land donated by public authorities. Grants in respect of revenue expenditure are included in the income and expenditure account in the same period as the expenditure to which they relate. (g) Properties for Sale Completed properties for outright sale and properties under construction are valued at the lower of cost and net realisable value. Cost comprises 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.


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(h) Other tangible fixed assets Service charge assets and other fixed assets, such as office buildings, are stated at cost less depreciation. Depreciation is provided evenly on the cost of service charge assets and other tangible fixed assets to write them down to their estimated residual values over their expected useful lives on a straight line basis at the following rates: Freehold offices

4%

Lifts

4%

Office furniture and improvements

14.3%

Service equipment

20%

Motor vehicles

25%

Computer equipment

33.3%

Major software

10%

(i) Pensions The Group participates in the Social Housing Pension Scheme final salary pension scheme and retirement benefits to Group employees are funded by contributions from all participating employers and employees in the scheme. Payments are made to a fund operated by the Pensions Trust, an independent trust providing superannuation benefits for employees of voluntary organisations. These payments are made in accordance with periodic calculations by consulting actuaries and are based on pensions costs applicable across the various participating associations taken as a whole. Note 8 gives a full explanation of potential pension liabilities and costs. (j) Agency managed hostels The Group has brought into its financial statements only income and expenditure under its direct control in respect of agency managed hostels.

(l) HomeBuy A subsidiary of the Group, East Homes Limited, participates in the HomeBuy scheme. Purchasers are given a grant of 25% of the value of their home by the company which is in turn reimbursed by the Housing Corporation by way of social housing grant. No rent is payable to the company. The company receives an allowance for handling the transaction, paid by way of further grant. (m) Impairment Housing properties 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 occurred. Where there is evidence of impairment, fixed assets are written down to their recoverable amount. Any such write down is charged to operating surplus. (n) Restatements (i) Turnover and operating cost Turnover and operating costs for the previous year both include an additional ÂŁ5,612k in respect of sales of properties at cost to other Registered Social Landlords, in compliance with SORP 2005. (ii)

Units of accommodation (Note 5) The figures at 31 March 2006 have been corrected.

(iii)

Grants applicable to housing properties (Note 10) The investments in HomeBuy and Starter Home Initiative as at the previous year end have been restated to reflect reduction in grant following disposals.

(k) Taxation East Thames Group Limited is a registered charity and is registered under the Companies Act 1985 and is not generally subject to corporation tax.

19


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Notes to the financial statements 31 March 2007 (continued) 2.

Particulars of turnover, cost of sales, operating costs and operating surplus

Operating GROUP

2007

2006

Operating

Operating

surplus/

surplus/

Turnover

costs

(deficit)

(deficit)

£’000

£’000

£’000

£’000

Housing accommodation

36,232

26,896

9,336

11,635

Special needs accommodation

17,667

16,948

719

228

Temporary social housing

13,294

13,438

(144)

(109)

6,626

4,661

1,965

650

73,819

61,943

11,876

12,404

1,836

1,989

(153)

119

877

(877)

Social housing lettings

Shared ownership accommodation Other social housing activities Regeneration and development services Abortive costs Sales of properties developed for sale to other Registered Social Landlords

7,811

7,811

Other

1,169

3,886

(2,717)

(2,949)

10,816

14,563

(3,747)

(2,830)

84,635

76,506

8,129

9,574

2007

2006

Operating

Operating

Surplus/

Surplus/

Total

Operating PARENT

Turnover

costs

(deficit)

(deficit)

£’000

£’000

£’000

£’000

Regeneration and development services

Grant from subsidiary

12,593

17,123

5,000 –

Other Total

Other income and expenditure

Group recharge Donation received from Group member Other donations

(1,406)

5,000

3,000

6

418

418

569

18,011

17,123

888

2,169

The abortive costs relate to one-off expenditure on large potential development projects which did not progress due to planning issues.

20

(4,530)


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Income and expenditure from social housing lettings Care and supported housing Temporary

GROUP

Housing

Supported

Residential

social

Shared

accommodation

housing

care homes

housing

ownership

2007

2006

£’000

£’000

£’000

£’000

£’000

£’000

£’000

31,884

2,234

454

10,644

4,600

49,816

50,319

1,714

3,764

396

5,874

5,842

33,598

5,998

454

10,644

4,996

55,690

56,161

Rent receivable net of identifiable service charges Service charges receivable Net rental income Revenue grants from local authorities and other agencies

2,482

1,875

6,452

10,809

11,739

Support charges – fixed contract

2,159

22

2,181

2,069

Other grants

1,046

1,046

483

152

707

1,604

1,630

4,093

3,385

36,232

10,739

6,928

13,294

6,626

73,819

73,837

1,195

1,042

570

1

30

2,838

3,016

Other income Turnover from social housing lettings Services

14,953

7,376

6,727

12,526

4,329

45,911

44,734

Routine maintenance

Management

5,689

999

251

759

297

7,995

6,736

Planned maintenance

3,273

1

5

3,279

3,613

151

399

521

Rent losses from bad debts

304

(54)

(2)

Revenue element of major repairs expenditure

322

322

827

1,160

1,160

1,000

Housing properties depreciation Other costs Operating costs on social housing lettings Operating surplus/(deficit) on social housing lettings Void losses

39

39

986

26,896

9,363

7,585

13,438

4,661

61,943

61,433

9,336

1,376

1,965

11,876

12,404

822

189

276

1,797

1,431

(657)

(144)

45

465

21


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Notes to the financial statements 31 March 2007 (continued) 4.

Sale of fixed assets – housing properties

GROUP

Sales of older and shared ownership properties

Sales

Cost

2007

2006

Proceeds

of Sales

Surplus

Surplus

£’000

£’000

£’000

£’000

17,235

9,419

7,816

3,986

HomeBuy

1,473

1,054

419

371

Starter Home Initiative – current year sales

3,799

3,428

371

22,507

13,901

8,606

4,357

Starter Home Initiative – release of prior year surpluses

5.

222

8,828

4,357

Units of accommodation in management

GROUP

Self contained rental stock

Hostels and shared

Managed for others

housing Hostels/ Supported

Self-

shared

Temporary

Managed by

Managed

housing

Managed by

Managed

contained

housing

social

Shared

Total

East Thames

by others

stock

East Thames

by others

units

bedspaces

housing

ownership

1 April 2006

11,404

7,268

216

615

199

252

131

21

1,108

1,594

31 March 2007

11,300

7,477

218

627

199

252

174

21

841

1,491

restated

The reason for the restatement of the comparative figures is explained in Note 1 Accounting Policies (n)(ii).

22


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Operating surplus Group

Group

Parent

2007

2006

2007

2006

This is arrived at after charging:

£’000

£’000

£’000

£’000

Depreciation of housing properties

1,160

1,000

Depreciation of tangible fixed assets

1,086

1,022

964

946

Profit or loss on sale of other fixed assets Operating leases on land and buildings – (to cover rental payments to Private Sector Landlords for properties used for temporary accommodation for START tenants)

Parent

10,468

13,150

Fees payable to the company's auditor for the audit of the financial statements

11

9

11

9

Audit of the financial statements of the Company’s subsidiaries pursuant to legislation

54

49

6

2

Group

Group

Parent

Parent

2007

2006

2007

2006

£’000

£’000

£’000

£’000

245

127

Fees payable to the company's auditor for other services

7.

Net interest payable and similar charges

Interest receivable Interest payable on loans and leases: – repayable wholly within five years – repayable in more than five years

Interest receivable from other RSLs Interest payable capitalised on housing properties under construction Interest payable capitalised on commercial properties under construction Interest receivable transferred to the RCGF/DPF Amortisation of loan issue costs Interest receivable transferred to the Housing Corporation SHI

(13,862)

(12,966)

(13,617)

(12,839)

524

329

3,771

3,232

148

(679)

(610)

(72)

(115)

(10,040)

(9,888)

Exceptional Item Breakage costs on refinancing the loans portfolio During the year the Group refinanced £46 million of loans with HACO and THFC from the £400 million loan facility set up in March 2006 with Barclays and Nationwide. The refinancing of these loans incurred £12.6 million of breakage costs which have been charged to the income and expenditure account in the current year.

23


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Notes to the financial statements 31 March 2007 (continued) 8.

Employees Group

Group

Parent

Parent

2007

2006

2007

2006

Administration

516

517

119

122

Care staff

475

450

61

47

Number of employees expressed in full time equivalents

Direct labour Wardens, caretakers, cleaners

3

1,052

1,017

119

122

Group

Group

Parent

Parent

2007

2006

2007

2006

Wages and salaries

25,586

24,111

4,451

4,033

Social security costs

2,399

2,242

432

389

Other pension costs

1,234

1,093

331

246

29,219

27,446

5,214

4,668

Staff costs

Social Housing Pension Scheme (SHPS) East Thames Group Limited participates in the Social Housing Pension Scheme (SHPS). SHPS is a multi-employer defined benefit scheme. The Scheme is funded and is contracted out of the state scheme. The Scheme operated a single benefit structure, final salary with a 1/60th accrual rate to March 2007. From April 2007 there are three benefit structures available, namely: • Final salary with a 1/60th accrual rate. • Final salary with a 1/70th accrual rate. • Career average revalued earnings with a 1/60th 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 benefit structure at any one time. An open benefit structure is one which new entrants are able to join. East Thames Group Limited has elected to operate the final salary with a 1/60th accrual rate benefit structure for active members as at 1st April 2007 and for new entrants from that date. The Trustee commissions an actuarial valuation of the Scheme every three years. The main purpose of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required 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

24

and employer is set at individual employer level, subject to the employer paying no less than 50% of the total contribution rate. 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 East Thames Group Limited paid contributions at the rate of 11.7%. Group contributions to the scheme in the period amounted to £1,234k (2006: £1,093k). Member contributions varied between 3.1% and 6.1% depending on their age. At the balance sheet date there were 318 active members of the Scheme employed by East Thames Group and it continues to offer membership of the Scheme to its employees. It is not possible in the normal course of events to identify the share of underlying assets and liabilities belonging to individual participating employers. Accordingly, due to the nature of the Plan, the accounting charge for the period under FRS17 represents the employer contribution payable.


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The last formal valuation of the Scheme was performed as at 30 September 2005 by a professionally qualified actuary using the ‘Projected Unit Method’. The market value of the Scheme’s assets at the valuation date was £1,278 million. The valuation revealed a shortfall of assets compared to liabilities of £283 million equivalent to past service funding level of 82%.

With effect from 1 April 2007 the employer and employee contribution rates for East Thames Group Limited. will be 14.1% and 6.4%-8.4% of pensionable salaries respectively.

The Scheme Actuary has prepared an Actuarial Report that provides an approximate update on the funding position of the Scheme as at 30 September 2006. Such a report is required by legislation for years in which a full actuarial valuation is not carried out. The funding update revealed an increase in the assets of the Scheme to £1,515 million and indicated a decrease in the shortfall of assets compared to liabilities to approximately £235 million, equivalent to a past service funding level of 87%. Annual funding updates of the SHPS Scheme are carried out using approximate actuarial techniques rather than member by member calculations, and will therefore not produce the same results as a full actuarial valuation. However they will provide a good indication of the financial progress of the Scheme since the last full valuation.

Employers that have closed the Scheme to new members are required to pay an additional employer contribution loading of 3.0% to reflect the higher costs of a closed arrangement.

Since the contribution rates payable to the Scheme have been determined by reference to the last full actuarial valuation the following notes relate to the formal actuarial valuation as at 30 September 2005. The financial assumptions underlying the valuation as at 30 September 2005 were as follows: % pa Investment return pre retirement

7.2

Investment return post retirement

4.8

Rate of salary increases to 30 September 2010

5.0

Rate of salary increases from 1 October 2010

4.0

Rate of pension increases

2.5

Rate of price inflation

2.5

The long-term joint contribution rate required from employers and members to meet the cost of future benefit accrual was assessed at: Benefit structure

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

Final salary with a 1/60th accrual rate

17.6

Final salary with a 1/70th accrual rate

15.3

Career average revalued earnings with a 1/60th accrual rate

14.1

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.

Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a combined employer and employee rate).

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 the SHPS Scheme. Employers joining the Scheme after 1 October 2002 that do not transfer any past service liabilities to the Scheme pay contributions at the ongoing future service contribution rate. This rate is reviewed at each valuation and applies until the second valuation after the date of joining the Scheme, at which point the standard employer contribution rate is payable. Contribution rates are changed on the 1 April that falls 18 months after the valuation date. If the valuation assumptions are borne out in practice this pattern of contributions should be sufficient to eliminate the past service deficit by 30 September 2020. 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). The Regulator has reviewed the recovery plan for the SHPS Scheme and confirmed that, in respect of the September 2005 actuarial valuation, it does not propose to issue any scheme funding directions under Part 3 of the Pensions Act 2004. The next full actuarial valuation will be carried out as at 30 September 2008. An Actuarial Report will be prepared as at 30 September 2007 in line with statutory regulations. Following a change in legislation in September 2005 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.

Following consideration of the results of the actuarial valuation it was agreed that the shortfall of £283 million would be dealt with by the payment of deficit contributions of 4.4% of pensionable salaries with effect from 1 April 2007. These deficit contributions are in addition to the long-term joint contribution rates set out in the table above.

25


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Notes to the financial statements 31 March 2007 (continued) 8.

Employees (continued)

The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on a buyout 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. East Thames Group Limited has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Scheme as at 31 March 2007. As of this date the estimated employer debt for East Thames Group was £27,190,000. The Group has also been notified that following the merger of East Choice with East Homes, the proportion of the SHPS potential debt relating to East Choice at the date of the merger should be secured by either a bond or a charge on assets. The Scheme Actuary has advised that the estimated buy-out debt as at 30 September 2005 is £2,458,665. Pension Trust – Growth Plan East Thames Group Limited participates in the Pensions Trust’s Growth Plan. The Growth Plan is a multi-employer pension plan. Contributions paid into the Growth Plan up to and including September 2001 were converted to defined amounts of pension payable from Normal Retirement Date. From October 2001 contributions were invested in personal funds which have a capital guarantee and which are converted to pension on retirement, either within the Growth Plan or by the purchase of an annuity. The Plan is funded and is not contracted out of the state scheme. The rules of the Growth Plan allow for the declaration of bonuses and/or investment credits if this is within the financial capacity of the Plan assessed on a prudent basis. Bonuses/investment credits are not guaranteed and are declared at the discretion of the Plan’s Trustee. The rules of the Growth Plan give the Trustee the power to require employers to pay additional contributions in order to ensure that the statutory funding objective under the Pensions Act 2004 is met. The statutory funding objective is that a pension scheme should have sufficient assets to meet its past service liabilities, known as Technical Provisions.

26

The Trustee commissions an actuarial valuation of the Growth Plan every 3 years. The purpose of the actuarial valuation is to determine the funding position of the Plan by comparing the assets with the past service liabilities as at the valuation date. Asset values are calculated by reference to market levels. Accrued past service liabilities are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. If the actuarial valuation reveals a deficit, the Trustee will agree a recovery plan to eliminate the deficit over a specified period of time either by way of additional contributions from employers, investment returns or a combination of these. East Thames Group Limited offers the Growth Plan as an AVC investment option for members of the Social Housing Pension Scheme. The members pay contributions at a rate of their choice. East Thames Group Limited does not normally pay any contributions to the Growth Plan. It is not possible in the normal course of events to identify the share of underlying assets and liabilities belonging to individual participating employers. Accordingly, due to the nature of the Plan, 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 2005 by a professionally qualified actuary using the Projected Unit Method. The market value of the Scheme’s assets at the valuation date was £675 million and the Plan’s Technical Provisions (i.e. past service liabilities) were £704 million. The valuation therefore revealed a shortfall of assets compared with the value of liabilities of £29 million, equivalent to a funding level of 96%. The Scheme Actuary has prepared an Actuarial Report that provides an approximate update on the funding position of the Plan as at 30 September 2006. Such a report is required by legislation for years in which a full actuarial valuation is not carried out. The funding update revealed an increase in the assets of the Scheme to £747 million and indicated a surplus of assets compared to liabilities of approximately £2 million, equivalent to a funding level of 0.2%. Annual funding updates of the Growth Plan are carried out using approximate actuarial techniques rather than member by member calculations, and will therefore not produce the same results as a full actuarial valuation. However they will provide a good indication of the financial progress of the Plan since the last full valuation. Since the contribution rates payable to the Plan have been determined by reference to the last full actuarial valuation the following notes relate to the formal actuarial valuation as at 30 September 2005.


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The financial assumptions underlying the valuation as at 30 September were as follows: % pa Investment return pre retirement

6.6

Investment return post retirement

4.5

Bonuses on accrued benefits Rate of price inflation

0 2.5

In determining the investment return assumptions the Trustee considered advice from the Scheme Actuary relating to the probability of achieving particular levels of investment return. The Trustee has incorporated an element of prudence into the pre and post retirement investment return assumptions; such that there is a 60% expectation that the return will be in excess of that assumed and a 40% chance that the return will be lower than that assumed over the next 10 years. 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. In view of the small funding deficit and the level of prudence implicit in the assumptions used to calculate the Plan liabilities the Trustee has prepared a recovery plan on the basis that no additional contributions from participating employers are required at this point in time. In reaching this decision the Trustee has taken actuarial advice and has been advised that the shortfall of £29 million will be cleared within five years if the investment returns from assets are in line with the ‘best estimate’ assumptions. ‘Best estimate’ means that there is a 50% expectation that the return will be in excess of that assumed and a 50% expectation that the return will be lower than that assumed over the next 10 years. These ‘best estimate’ assumptions are 7.6% per annum pre retirement and 4.8% per annum post retirement. A copy of the recovery plan 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). The Regulator has reviewed the recovery plan for the Growth Plan and confirmed that, in respect of the September 2005 actuarial valuation, it does not propose to issue any scheme funding directions under Part 3 of the Pensions Act 2004. The next full actuarial valuation will be carried out as at 30 September 2008. An Actuarial Report will be prepared as at 30 September 2007 in line with statutory regulations. Following a change in legislation in September 2005 there is a potential debt on the employer that could be levied by the Trustee of the Plan.

The Trustee’s current policy is that it only applies to employers with pre October 2001 liabilities in the Plan. The debt is due in the event of the employer ceasing to participate in the Plan or the Plan winding up. The debt for the Plan as a whole is calculated by comparing the liabilities for the Plan (calculated on a buyout 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 Plan. 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 Plan’s pre October 2001 liability attributable to employment with the leaving employer compared to the total amount of the Plan’s pre October 2001 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 Plan liabilities, Plan 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. East Thames Group Limited has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Scheme as at 30 September 2005. As of this date the estimated employer debt for East Thames Group was £70,000. NHS Pension Scheme The NHS Pension Scheme is an unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies, allowed under the direction of Secretary of State, in England and Wales. As a consequence it is not possible for the East Thames Group Limited to identify its share of the underlying scheme liabilities. Therefore, the scheme is accounted for as a defined contribution scheme and the cost of the scheme is equal to the contributions payable to the scheme for the accounting period. Employers pension costs contributions are charged to operating expenses as and when they become due. Employer contribution rates are reviewed every four years following a scheme valuation carried out by the Government Actuary. On advice from the actuary the contribution may be varied from time to time to reflect changes in the scheme’s liabilities. At the last valuation on which contribution rates were based (31 March 1999) employer contribution rates from 2003–04 were set at 14% of pensionable pay. (Until 2002–03 HMT paid the Retail Price Indexation costs of the NHS Pension scheme direct but as part of the Spending Review Settlement, these costs have been devolved in full. For 2003–04 the additional funding was retained as a Central Budget by the Department of Health and was paid direct to the NHS Pension Scheme, whilst the employers' contribution remained at 7%. From 2004–05 this funding was devolved in full to NHS Pension Scheme employers and the employers' contribution rate rose to 14%.) The 2004 valuation of the Scheme is currently being prepared.

27


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Notes to the financial statements 31 March 2007 (continued) 8.

Employees (continued)

The total employer contribution payable in the year ended 31 March 2007 was £109,042 (2006: £115,886). In addition employees who are members of the Scheme pay contributions of 6% (manual staff 5%) of their pensionable pay. In addition the Scheme is subject to a full valuation for FRS17 accounting purposes every four years. The last valuation on this basis took place as at 31 March 2003. Between valuations, the Government Actuary provides an update of the scheme liabilities on an annual basis. The latest assessment of the liabilities of the Scheme is contained in the Scheme Actuary report, which forms part of the NHS Pension Scheme (England and Wales) Resource Account, published annually. The Scheme is a “final salary” scheme. Annual pensions are normally based on 1/80th of the best of the last three years pensionable pay for each year of service. A lump sum normally equivalent to three years pension is payable on retirement. Annual increases are applied to pension payments at rates defined by the Pensions (Increase) Act 1971, and are based on changes in retail prices in the twelve months ending 30 September in the previous calendar year. On death, a pension of 50% of the member’s pension is normally payable to the surviving spouse.

28

Early payment of a pension, with enhancement, is available to members of the Scheme who are permanently incapable of fulfilling their duties effectively through illness or infirmity. The Scheme also provides for death benefits, with a death gratuity of twice final year’s pensionable pay for death in service, and up to five times the annual pension for death after retirement payable. The Scheme provides the opportunity to members to increase their benefits through money purchase Additional Voluntary Contributions (AVCs) provided by an approved panel of life companies. Under the arrangement the employee can make contributions to enhance their pension benefits. The benefits payable relate directly to the value of the investments made. Except for where the retirement is due to ill-health, additional pension liabilities arising from early retirements are met by the Scheme and recharged to the employees former employer. The full amount of the liability for the additional costs is charged to the Operating Cost Statement at the time the Authority commits itself to the retirement, regardless of the method of payment.


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Directors, members and senior staff emoluments

The Directors of the parent company as defined under the Accounting Requirements for Registered Social Landlords General Determination 2006 are its Management Board, the Chief Executive and any other person who is a member of the senior management team. Basic salary

Benefits

Pension

Total

in kind contributions

2007

Total 2006

£’000

£’000

£’000

£’000

£’000

Chief Executive June Barnes

132

1

11

144

138

Deputy Chief Executive Martin Heys

108

1

109

103

Managing Director – East Homes Limited Victor da Cunha

97

11

108

98

Managing Director – East Living Limited Martin van Tol

86

1

10

97

90

Managing Director – East Potential David Chesterton

76

1

9

86

81

Group Director – Development Steven Tarry (to May 06)

10

1

11

98

Group Director – Development Geoff Pearce (from July 06)

67

8

75

Group Director – Corporate Services Davina Boakye (excludes sabbatical)

64

1

9

74

82

Group Director – Business Services Jacky Kutner

76

1

9

86

81

Group Company Secretary Henry Potter

53

6

59

56

769

6

74

849

827

The highest paid director received remuneration of £144,000 (2006: £138,000)

The Chief Executive is an ordinary member of the pension scheme and has a contractual arrangement with East Thames Group Limited covering additional voluntary contributions (AVC's). There are no other enhanced pension arrangements to which East Thames Group or any of its subsidiaries make a contribution.

Remuneration paid to committee members for the year amounts to £104,582 (2006: £122,000). Expenses paid during the year to members of the Board amount to £105,327 (2006: £54,937). No payments of benefits, other than those permitted, were made to the persons referred to in Part 1, Schedule 1 of the Housing Act 1996.

29


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Notes to the financial statements 31 March 2007 (continued) 10.

Tangible fixed assets – housing properties

Valuation As at 1 April 2006 Additions Works to existing properties Interest capitalised Schemes completed Disposals Valuation adjustment At 31 March 2007 Depreciation and impairment As at 1 April 2006 Depreciation charged in year Valuation adjustment At 31 March 2007

Housing properties held for letting £’000 364,282 2,050 6,826 17 41,683 (534) (19,137) 395,187

– 1,160 (1,160) –

Housing properties under construction £’000 72,846 36,007 – 1,798 (41,683) (877) – 68,091

– – – –

Shared ownership properties held for letting £’000 78,278 13,571 – – 11,638 (27,472) 2,833 78,848

– – – –

Shared ownership properties under construction £’000 57,932 20,728 – 1,956 (11,638) – – 68,978

– – – –

Total £’000 573,338 72,356 6,826 3,771 – (28,883) (16,304) 611,104

– 1,160 (1,160) –

Social housing and other grants As at 1 April 2006 Additions Schemes completed Disposals Valuation adjustment At 31 March 2007

– 10 19,851 (304) (19,557) –

41,270 15,094 (19,851) (1,575) – 34,938

– (73) 5,954 (4,611) (1,270) –

14,334 2,802 (5,954) – – 11,182

55,604 17,833 – (6,490) (20,827) 46,120

Net book value At 31 March 2007 At 31 March 2006

395,187 364,282

33,153 31,576

78,848 78,278

57,796 43,598

564,984 517,734

2007 £'000

2006 £'000

6,826 322 7,148

7,252 827 8,079

474,613 – 474,613

448,291 – 448,291

564,629 355 564,984

517,379 355 517,734

Expenditure on works to existing properties Amount capitalised Amounts charged to income and expenditure account Total accumulated capital and revenue social grant receivable Capital grants Revenue grants Housing properties comprise: Freehold land and buildings Long leasehold land and buildings

30


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Completed housing properties held for letting are stated at Existing Use Value for Social Housing (EUV-SH) and shared ownership properties are stated at EUV-SH less the Net Present Liability to repay Social Housing Grant. Housing properties have been valued by professional valuers, FPD Savills, Chartered Surveyors.

The last valuation of completed housing properties was prepared as at 31 March 2007 in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. This has resulted in a positive valuation adjustment as follows:

Completed properties at valuation

£’000

East Homes Limited

474,035 474,035

Housing properties under construction at cost East Homes Limited

137,069 611,104

In the valuing of housing properties, discounted cash flow methodology was adopted and key assumptions included: Discount rate

6.0%

Annual inflation rate

2.5%

Level of annual rent increase

0.5%

The carrying value of the housing properties that would have been in the financial statements had the assets been carried forward at historical costs less SHG and depreciation is as follows: 2007 £’000 Historical cost Social Housing Grant Other capital grants Depreciation and impairment

820,783

765,262

(423,052)

(410,686)

(51,561)

(52,584)

(5,573)

New investment

(4,874)

340,597

297,118

2007 £’000

restated 2006 £’000

35,945

36,864

Investment in HomeBuy and Starter Home Initiative:

Long term investment in properties

restated 2006 £’000

161

1,915

Decrease in investment in properties

(4,400)

(2,834)

Cost of HomeBuy and Starter Home Initiative

31,706

35,945

(31,706)

(35,945)

Less: Social Housing Grant

The reason for the restatement of the comparative figures is explained in Note 1 Accounting Policies (n)(iii).

31


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Notes to the financial statements 31 March 2007 (continued) 11.

Tangible fixed assets – Other Freehold office under construction £’000

Freehold office £’000

At 1 April 2006

2,976

Additions

8,873 11,849

GROUP

Plant equipment & furniture £’000

Motor vehicles £’000

Total £’000

11,664

8,633

131

23,404

1,311

1,678

11,862

12,975

10,311

131

35,266

Cost

At 31 March 2007 Depreciation At 1 April 2006

(3,370)

(4,755)

(121)

(8,246)

Charged in year

(335)

(747)

(4)

(1,086)

At 31 March 2007

(3,705)

(5,502)

(125)

(9,332)

Net book value At 31 March 2007

11,849

9,270

4,809

6

25,934

At 31 March 2006

2,976

8,294

3,878

10

15,158

At 1 April 2006

2,976

9,350

7,778

20,104

Additions

8,873

381

1,634

10,888

11,849

9,731

9,412

30,992

(7,621)

PARENT Cost

At 31 March 2007 Depreciation At 1 April 2006

(3,306)

(4,315)

Charged in year

(330)

(634)

(964)

At 31 March 2007

(3,636)

(4,949)

(8,585)

Net book value At 31 March 2007

11,849

6,095

4,463

22,407

At 31 March 2006

2,976

6,044

3,463

12,483

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Investments and related party transactions 2007 £’000

2006 £’000

Passmore Urban Renewal Limited

450

Fixed term Treasury Deposit

1,235

1,685

Both of these investments were repaid this year. The investment in Passmore Urban Renewal Limited was recovered at cost. The fixed term treasury deposit was cashed in and converted to cash at bank.

The parent company has a 100% shareholding in East Street Services Limited whose main activity is to undertake property management services for other associations and to deal with other non-charitable housing activities. The parent company owns one £1 nominal share in East Living Limited whose main activity is providing care and housing management for supported housing and residential care homes. The parent company has entered into trust arrangements with the members of East Living Limited which require it to classify it as a subsidiary.

East Regen Limited commenced trading on 1 April 2005 and has provided management and development services for the Group during the year. East Homes Limited has entered into a lease and leaseback arrangement for the Stratford (Focus E15) Foyer with East Potential, a fellow subsidiary, for a period of 25 years. The net margin passing to East Potential amounts to £5,000 per annum.

The parent company has entered into trust arrangements with the members of East Potential which require it to classify it as a subsidiary. The principal activity of East Potential is the provision of housing management services at the Stratford (Focus E15), Harlow (Occasio House), Redbridge, and Tower Hamlets (Drapers City) Foyers and First Step Assessment Centre and related training and information services to young people in east London and Harlow.

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Notes to the financial statements 31 March 2007 (continued) 13.

Properties for sale

Completed properties for sale to other Registered Social Landlords

Group 2007 £’000

Group 2006 £’000

9,860

4,700

Properties for sale to other Registered Social Landlords under construction net of Social Housing Grant

14.

2,654

14,224

12,514

18,924

Parent 2007 £’000

Parent 2006 £’000

Debtors Group 2007 £’000

Group 2006 £’000

Due within one year: Arrears of rent and service charges

3,414

3,762

(2,050)

(1,934)

1,364

1,828

Other debtors

4,756

3,717

560

677

Prepayments and accrued income

1,151

1,117

196

172

10,164

37,440

7,271

6,662

10,920

38,289

Less: Provision for bad and doubtful debts

Amounts due from group companies (net of provisions)

15.

Cash at bank and in hand

Included in cash at bank and in hand are amounts totalling Group : £200,000 (Parent Company : £ Nil ) 2006 Group £200,000 (Parent Company : £ Nil) which are subject to restrictions and are not freely available for general use.

34


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Creditors: Amounts falling due within one year Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

Loans (note 20)

5,050

666

Bank overdraft

1,144

3,580

1,144

3,276

Rent and service charges received in advance

1,552

1,906

Social Housing Grants received in advance

5,758

2,739

20,375

39,526

Amount due to group companies Taxation and social security

601

170

54

10,550

9,905

1,708

502

Other creditors

7,305

5,661

4,045

2,707

Recycled Capital Grant Fund (note 18)

3,140

610

685

35,710

25,312

27,326

45,659

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

289,678

249,115

Accruals and deferred income

Disposal Proceeds Fund (note 19)

(352)

Social Housing Grant received in advance will be utilised against capital expenditure in 2007–08.

17.

Creditors: Amounts falling due after more than a year

Loans (note 20) Deferred income

1,281

Recycled Capital Grant Fund (note 18)

9,467

9,883

Disposal Proceeds Fund (note 19)

1,047

932

Other

3,538

1,732

303,730

262,943

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Notes to the financial statements 31 March 2007 (continued) 18.

Recycled Capital Grant Fund Group 2007 £’000

Group 2006 £’000

At 1 April 2006

9,883

10,423

Grants recycled

5,634

3,487

Interest accrued

587

Purchase/development of properties Repayment of grant to Housing Corporation Balance at 31 March 2007 Amount due for repayment to Housing Corporation

414

(3,497)

(4,441)

12,607

9,883

12,607

9,883

3,140

Group 2007 £’000

Group 2006 £’000

1,617

2,035

689

322

19. Disposal Proceeds Fund

At 1 April 2006 Net sale proceeds recycled Interest accrued Major repairs and works to existing stock Balance at 31 March 2007

91

94

(740)

(834)

1,657

1,617

Grants from the Recycled Capital Grant Fund and Disposal Proceeds Fund are used to build more affordable homes and to meet local and regional housing priorities. On larger schemes use of the funding offers better value for money, therefore less is required from central government.

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Debt analysis

Due within one year: Bank overdraft Bank loans Royal Bank of Scotland (originally the Housing Corporation) loans Other loans

Due after more than one year: Bank loans Royal Bank of Scotland (originally the Housing Corporation) loans Barclays Bank Nationwide Building Society HACO Other loans Capitalised costs

Loans are repayable as follows: Within one year Between one and two years Between two and five years After more than five years

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

1,144 – 50 5,000 6,194

3,580 ��� 28 638 4,246

1,144 – – – 1,144

3,276 – – – 3,276

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

– 6,004 146,118 138,000 – 1,417 (1,861)

260 5,812 80,884 116,458 25,000 21,614 (913)

– – – – – – –

– – – – – – –

289,678

249,115

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

6,194 38 138 291,363

4,246 1,309 2,501 246,217

1,144 – – –

3,276 – – –

297,733

254,273

1,144

3,276

During the year new loan arrangements between East Treasury Limited (a member of East Thames Group Limited), Nationwide, Barclays and Barclays Syndicate totalling £400m were agreed. This facility has been used to refinance our existing loan portfolio and provide significant additional funds for development and other new business initiatives.

The HACO £25 million bond is due to be repaid in 2006–07 as part of the refinancing of existing loans. The interest is fixed at 10.625%.

At 31st March 2007 East Homes Limited had borrowed £161 million from East Treasury Limited for this purpose. Interest is payable on the new facility borrowings at fixed rates varying from 4.02% to 4.135% on £31 million, and at rates linked to LIBOR on the remaining £130 million.

The £1.25 million THFC Bond is fixed at 12.97% and is due to be repaid in 2019.

The consolidated loan from Royal Bank of Scotland is repaid in half-yearly instalments over the estimated life of the scheme on which the loan is secured, at a fixed interest rate of 10.65%. The final instalments are due for repayment in the period 2006 to 2037.

THFC loans totalling £20 million are due to be repaid in 2006–07 as part of the refinancing of existing loans. The interest rates payable range from 5.05% to 5.57%.

All loans are secured by a combination of fixed and variable charges on individual properties.

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Notes to the financial statements 31 March 2007 (continued) 21.

Annual obligations under operating leases Group 2007 £’000

Group 2006 £’000

Within one year

1,685

2,040

In the second to fifth years inclusive

3,535

4,109

277

479

Group 2007 £’000

Group 2006 £’000

100

2007 £

2006 £

47

49

Operating leases on land and buildings which expire:

Over five years

22.

Provision for liabilities

Dilapidation repair provision The provision has been released, as the level of repairs expected to be incurred does not include any material repairs. Day to day repairs will be funded from revenue reserves.

23.

Non-equity share capital

Shares of £1 each issued and fully paid At 1 April 2006 Shares issued during the year

0

2

Shares surrendered during the year

(3)

(4)

At 31 March 2007

44

47

The shares provide members with the right to vote at general meetings, but do not provide any rights to dividends, redemption of share capital or distribution on winding up.

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Reserves

GROUP At 1 April 2006 Deficit for the year Property revaluation adjustment Transfers Utilisations – Gift Aid At 31 March 2007

Revaluation £’000

Restricted £’000

220,616

1,784

3,011

263

5,682

2,458

(1,685)

(1,912)

(2,231)

Designated Consolidated £’000 £’000

Revenue £’000

Total £’000

53,768

279,442

(5,662)

(5,662) 5,682

546

1,139

1,685

224,386

99

3,011

263

51,703

279,462

Restricted £’000

Designated £’000

Revenue £’000

Total £’000

1,685

3,428

5,113

888

546

546

1,139

1,685

6,001

6,001

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

25

25

1,685

1,685

PARENT At 1 April 2006 Surplus for the year Transfers Utilisations – Gift Aid At 31 March 2007

Restricted reserves comprise: Donations Gift Aid East Potential

Designated reserves comprise: Major repairs schemes funded under 1988 legislation Development – borough specific Gift Aid

The Group plans its financial affairs to ensure that each year revenue income exceeds revenue expenditure. This policy ensures that the Group has a margin of safety to manage unexpected expenditure or shortfalls in income. The annual surpluses ensure that East Thames Group Limited is able to meet its commitment to providers of private finance and continue to provide social housing. During the year the Group refinanced £46 million of loans and bonds with HACO and THFC from the £400 million loan facility set up in March 2006 with Barclays and Nationwide. The breakage costs of the refinancing arrangement totalling £12.6 million were charged to the income and expenditure account in the current year.

(2,231)

888 (1,685)

74

74

99

1,784

1,685

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

2,068

2,068

911

911

32

32

3,011

3,011

The resulting deficit on ordinary activities of £5.7 million and the positive movement on reserves of £3.6 million were added to the reserves brought forward of £53.8 million resulting in £51.7 million being carried forward. The benefits of this refinancing package will be reflected in lower interest rate and administration costs in future years. Unlike commercial organisations the Group’s rules prevent the distribution of reserves. Instead these are applied to furthering our aims and objectives. At 31st March 2007 the Group’s reserves were all used in financing investments in social housing.

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Notes to the financial statements 31 March 2007 (continued) 25.

Financial commitments Group 2007 £’000

Group 2006 £’000

Expenditure contracted for but not provided in the accounts

167,920

105,860

Expenditure authorised by the Board but not contracted for

39,495

90,448

207,415

196,308

Parent 2007 £’000

Parent 2006 £’000

Capital Commitments

This expenditure will be funded from loan facilities, which are already in place, and from Social Housing Grant.

26.

Contingent liabilities

The Group had no contingent liabilities at 31 March 2007 (2006: £ Nil)

27.

Reconciliation of operating surplus to operating cash flows Group 2007 £’000

Group 2006 £’000

Operating surplus

8,129

9,573

888

2,169

Depreciation of fixed assets

2,246

2,088

964

946 –

Write off of abortive costs Sales allowances Net increase/(decrease) in provisions

877

(10)

(283)

42

107

11,011

11,758

1,852

3,115

Movement in Working Capital Decrease in investments Decrease/(increase) in stock

39

6,410

(7,515)

Decrease/(increase) in debtors

3,223

1,036

Increase/(decrease) in creditors

(1,423)

Net cash inflow from operating activities

19,221

40

(41) 5,277

27,370

(30,869)

(16,202)

30,178

13,020

2,424


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Reconciliation of net cash flow to movement in net debt

Increase/(decrease) in cash in the period Cash inflow from increase in debt and lease financing Cash outflow from loan issue costs Change in net debt resulting from cash flows Change in net debt resulting from non-cash flows

Group 2007 £’000

Group 2006 £’000

Parent 2007 £’000

Parent 2006 £’000

3,001

2,798

2,132

(134)

(45,896)

(69,310)

1,020 (41,875) (72)

437 (66,075) _

2,132 _

(134) _

Net debt at the start of the period

(245,726)

(179,651)

(3,276)

(3,142)

Net debt at the end of the period

(287,673)

(245,726)

(1,144)

(3,276)

29.

Analysis of net debt

Group

2006 £’000

Cashflow £’000

Other changes £’000

2007 £’000

Cash at bank and in hand

7,634

565

8,199

(3,580)

2,436

(1,144)

4,054

3,001

7,055

(666)

(4,384)

(5,050)

(250,027)

(41,512)

_

(291,539)

1,020

(72)

(41,875)

(72)

Bank overdraft

Loans due within one year Loans due after more than one year Capitalised loan issue costs

913 (245,726)

Parent Bank overdraft

2006 £’000 (3,276)

Cashflow £’000

Other changes £’000

2,132

1,861 (287,673)

2007 £’000 (1,144)

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OURMISSION,KEY AIMSANDVALUES Our mission To make a positive and lasting contribution to the neighbourhoods in which we work.

Our values

In achieving our mission, we will be driven by our four core business values. We will be customer focused: • responding to what our customers say; • providing excellent and reliable services; and • enabling customer choice. We will be ambitious: • creating new approaches to service delivery; • producing excellent outcomes; and • striving for excellence in everything we do. We deliver on our mission by: We will be professional: 1 providing high quality homes and services that meet the needs of • being straightforward in everything we do; our customers; • adopting a flexible approach to delivering services; • demonstrating a respectful approach to our customers; and 2 ensuring that our customers can influence our services; • being open, reliable and consistent. 3 influencing local, regional and national thinking, policies and strategies; We will be leaders: 4 developing well-informed, committed and enthusiastic staff; and • empowering our staff to act responsibly; • showing creativity in service provision; 5 actively using our financial and organisational strength. • inspiring those who work with us; and • campaigning on key issues.

Our key aims


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Designed by Campaign Works campaignworks.co.uk

Registered Office: 3 Tramway Avenue Stratford London E15 4PN Switchboard: 020 8522 2000 Customer Contact Centre: 0845 600 0830 Minicom: 020 8522 2006 Fax: 020 8522 2001 www.east-thames.co.uk Registered by the Housing Corporation, No. LH4309 Registered under the Companies Act 1985, No. 4091100 Registered charity 1084952 Member of the National Housing Federation This publication is printed on recycled paper. Published by East Thames Group Limited


Group Accounts 2007