Page 1


Financial statements for the year ended 31 March 2008

Contents Board members, senior staff, auditors and bankers

1

Report of the Board

2

Statement of responsibilities of the Board

5

Operating and financial review

6

Independent Auditors’ report to the Members of East Thames Group Limited

14

Consolidated income and expenditure account

16

Consolidated statement of total recognised surpluses and deficits

17

Consolidated balance sheet

18

Consolidated cash flow statement

19

Parent income and expenditure account

20

Parent balance sheet

21

Parent cash flow statement

22

Notes to the financial statements

23


East Thames Group Limited Financial Statements 1

EAST THAMES GROUP LIMITED BOARD MEMBERS, SENIOR STAFF, AUDITORS AND BANKERS

Board Chairman

Dr R. Chilton OBE

Vice Chair

Mr O. Olanrewaju (appointed Vice Chair April 2007)

Treasurer

Mr C.Villiers (retired September 2007) Mr A. Newell (appointed April 2007, appointed Treasurer from September 2007)

Other Members

Mr B. Robertson (resigned October 2007) Mr J. Norman Mr D. Edwards Mr D. Goodman Mrs L. Perham Ms J. Holmes (appointed April 2007) Ms D. Sorkin (appointed April 2007) Mr C. Ofili (appointed April 2007)

Senior Staff Group Chief Executive Deputy Chief Executive Group Director of Development Group Director of Corporate Services Group Director of Business Services Group Company Secretary

Ms J. Barnes Mr M. Heys (to December 2007) Mr G. Pearce Ms D. Boakye Ms J. Kutner (to November 2007) Mr H. Potter

Registered Office

29-35 West Ham Lane Stratford London E15 4PH

Auditors

Grant Thornton UK LLP Byron House Cambridge Business Park Cowley Road Cambridge CB4 0WZ

Bankers

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

Registered Charity 1084952 Registered under the Companies Act 1985 4091100 Registered by the Housing Corporation No. LH 4309


2 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED REPORT OF THE BOARD The Board presents its report and audited financial statements for the year ended 31 March 2008.

training, career development and promotion opportunities available to all employees.

Details of the Group’s principal activities, performance for the year and a summary of the financial results are presented in the Operating and Financial Review that follows this board report.

Tenant involvement We actively encourage tenants’ involvement in decision making. We encourage tenant Board members and have clear reporting arrangements between tenant groups and the Board.

Going concern The Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of 12 months after the date on which the report and financial statements are signed. For this reason, it continues to adopt the going concern basis in the financial statements.

Accounting principles These accounts have been compiled in accordance with the Statement of Recommended Practice: “Accounting by Registered Social Landlords” (Update 2005); the Accounting Requirements for Registered Social Landlords General Determination (2006); United Kingdom Generally Accepted Accounting Practice and the requirements of the Companies Act (1985). The property valuations have been presented at Existing Use Value for Social Housing (EUV-SH). Accounting policies that are specific to East Thames Group Limited are set out in Note 1 (page 23) of the financial statements.

Employee involvement One of our strengths is the quality of all our employees; it is the key factor in our ability to meet our objectives and commitments to residents and service users in an effective and efficient manner. We continue to consult and keep employees informed on matters affecting them, and on the progress of the Group. We do this in a number of ways including a formal forum for consultation, departmental meetings and a variety of newsletters and intranet pages.

Complaints A clear complaints policy is issued to all service users. This has been streamlined and Housing and Neighbourhood Management believe that the revised procedure should deliver greater consistency in complaint handling and less escalations. The redress and compensation policy has recently been reviewed and will offer alternatives to financial compensation. Partner contractors will be expected to abide by our policies.

Internal control The Board has overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness. This applies for 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.

Disabled employees

In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls which are embedded within the normal management and governance processes. This approach includes the regular evaluation of the nature and extent of risks to which the Group is exposed and is consistent with Housing Corporation circular 07/07: Internal Controls Assurance.

We give full and fair consideration to applications for employment from disabled persons for all vacancies. Should an employee become disabled, we make every effort to retain them in order that their employment within the Group may continue. It is Group policy to make

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:


East Thames Group Limited Financial Statements 3

REPORT OF THE BOARD, continued

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. We have undergone a major transformational change programme internally during the course of the year which has seen major changes to the executive staff structure. Changes to our approach to monitoring risk have been agreed as a result of these changes and will be implemented during 2008-09. There is a formal and on-going process of management review in each area of the Group’s activities. This 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 on-going 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 are 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 has been reviewed to ensure that the Group continues to comply and is 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. As part of our current change programme, a Chief Executive Support Unit has been established which will coordinate our approach to performance management and to measuring the critical success factors of the business. The internal control framework and the risk management process are subject to regular review by Internal Audit who are responsible for providing independent assurance to the Board via its Group Risk Management and Audit Committee. The Group Risk Management and Audit Committee considers internal control and risk regularly during the year.

Fraud The Board has established a fraud policy which covers the prevention, detection and reporting of fraud along with the recovery of assets. The Group operates a zero tolerance policy in relation to theft and fraud and reports all such confirmed instances to the relevant authorities. The Fraud Register is reviewed on an on-going basis through the Group’s Group Risk Management and Audit Committee and annually by the Board.


4 East Thames Group Limited Financial Statements

REPORT OF THE BOARD, continued

During the course of the year one incident of suspected fraud was reported to the Housing Corporation but was not investigated further by the Metropolitan Police. The incident involved a potential property sale to the Group; an assessment was made and it was found that no material loss was incurred by the Group.

The Board has received the Group Chief Executive’s annual report, which has been endorsed by the Group Executive, 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.

Instances of theft against the organisation and/or residents have occurred during the course of the year and have been fully investigated and reported to the police as appropriate. There has not been any discernable increase in the level of such incidents during the year.

The Board confirms that there is an on-going 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 Regulatory intervention There has been no regulatory intervention by the Housing Corporation during the course of the year and the Group continues to maintain its ‘green light’ status in the ‘Housing Corporation Assessment’ around governance, financial viability, management and development.

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 have been mentioned above. In summary these sources are: • strong management structures and clear accountability; • Board/Group Risk Management and Audit Committee oversight of the organisation’s business; • management assurances; • management reports on operational and financial matters; • management reports on operational and financial controls;

We are currently reviewing tenders for the provision of audit services. A resolution to appoint the successful tenderer for the auditors of the Group is to be proposed at the forthcoming Annual General Meeting. The auditors of the 2007-08 accounts are Grant Thornton UK LLP. At the date of making this report, the members and directors, as set out on page 1, 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 themselves 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 Friday, 18 July 2008, and signed on its behalf by:

• risk management activity; • control and risk self assessment; • internal and external audit; • key performance indicators linked to business plans; • quality management systems such as Investors in People; • regulatory reports

Henry Potter – Group Company Secretary


East Thames Group Limited Financial Statements 5

EAST THAMES GROUP LIMITED 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 insuring 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.


6 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED OPERATING AND FINANCIAL REVIEW Principal activities and legal status The Group is a Registered Social Landlord under the Housing Act (1996) and a registered charity under the Companies Act (1985). Its principal activities are the provision of central services to its operating subsidiaries, development of social housing and asset management. The Group and its subsidiaries work in the London boroughs of Newham, Tower Hamlets, Redbridge, Waltham Forest, Barking and Dagenham and Havering, and in Essex. All the subsidiaries are wholly owned by East Thames Housing Group. 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; • East Potential – a registered charity that manages foyers and neighbourhood regeneration programmes on behalf of the Group.

Performance, development and continuous improvement We are a major developer of new affordable housing, and are one of the Associations selected by the Housing Corporation as development partners. We are proud to have been selected by the Olympic Delivery Authority and London & Continental Railways alongside Lend Lease and First Base as the Preferred Development Partner for zones 2–7 of Stratford City – a remit which includes the Athletes’ Village. Our most recent Housing Corporation review gave us a full set of green lights. The Group Board and Group Executive receive Balanced Scorecard reports at each of their regular meetings, giving performance statistics across a range of activities undertaken by the Group, enabling them to make strategic decisions as trends emerge. The areas we monitor are regularly reviewed. Highlights for the year include: Development and marketing activity 800

There are five other subsidiaries that provide specialist and support services:

700

• East Foundation Limited – a registered charity that funds projects to help build sustainable communities;

500

• East Regen Limited – a non-charitable company that provides management and development services;

600

Units completed First tranche sales

400 300 200 100

• East Place Limited – a non-charitable company that undertakes commercial activities. Following a transfer of shares on the 8th October 2007 from East Thames Group Limited, East Place Limited (formerly East Street Limited) became a subsidiary of East Homes Limited; • East Treasury Limited – a non-charitable company that raises finance and provides treasury services; • EH Street Properties Limited – a non-charitable company acquired in March 2008 as a subsidiary of East Homes Limited. We have transferred the properties to East Homes Limited and will wind up this company in 2008-09.

0 2003/04

2004/05

2005/06

2006/07

2007/08

Completed units continue to increase year-on-year, whilst first tranche sales of shared ownership units remain broadly static.


East Thames Group Limited Financial Statements 7

OPERATING AND FINANCIAL REVIEW, continued

Development and sales activity (units)

Supported Housing Grant £35m £30m £25m

800

Allocation Claimed

First tranche sales (cumulative) Development starts Development completions

600

£20m

400

£15m 200

£10m £5m

0 Apr May Jun

0 2003/04

2004/05

2005/06

2006/07

Jul Aug Sep Oct Nov Dec Jan Feb Mar

2007/08

We have exceeded our Supported Housing Grant allocation every year.

Development activity picked up towards the end of the financial year, We completed 747 properties against a target of 610 exceeding our cash planning target by £15.9m.

Average maintenance spend/unit £1,400

Rent collection as a % of rent charge (cumulative figures)

£1,300 100%

£1,200 £1,100

95%

£1,000 £900

90%

£800 2003/04

2004/05

2005/06

2006/07

2007/08

Bringing more homes up to decent homes standard than anticipated has resulted in this increase in average unit revenue maintenance costs. At the end of 2007-08 95.2% of our homes had reached the Decent Homes standard and we have improved our SAP rating to 68.3 (2007: 65.4). Rent statistics

85% Apr May Jun

Jul Aug Sep Oct Nov Dec Jan Feb Mar

Improvements in rent collection processes resulted in achieving 100% completion rates by the end of the year. This performance put the Group in the G15 top quartile.*

8%

Top quartile performance has also been reported in:

7%

• General needs void loss 0.72% against a G15 top quartile of 0.75%*

6%

• General needs re-let time of 23.4 days against a Housing Corporation benchmark top quartile of 25.8 days

5% 4% 3% 2% 2003/04

2004/05

2005/06

2006/07

2007/08

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

Current arrears (included within gross arrears), have fallen over the year to 4.7% as at the end of March, well below the benchmark of 6.1%.

* The G15 quartile ratings are based on the G15 2006-07 information as the 2007-08 information was not available at the time of collating this report. The G15 is a group of registered social landlords within the London region who meet on a regular basis; benchmarking performance is one of the activities carried out.


8 East Thames Group Limited Financial Statements

OPERATING AND FINANCIAL REVIEW, continued

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 have identified key actions to ensure that we are able to deliver our promises.

Key aim 1 • To provide high quality homes and services that will meet the needs of our customers.

Strategies • Find innovative, high-quality solutions to meet specific customer and housing needs. • Deliver sustainability. • Meet the needs of the large and growing child and youth population. • Develop a wide range of housing for different lower income groups. • Pursue strategic opportunities for growth and stock transfer across east London and Essex.

Performance in 2007-08 • 95.2% of our general needs properties now meet Decent Homes standard (March 2007: 84.6%). • All homes meet the Housing Corporation minimum standard for the Code for Sustainable Homes. • A ‘One Stop Shop’ opened for all residents in March 2008. • Sustainability statements have been developed for 10 of our largest estates. • Research has been completed into the barriers for young black men accessing training and career opportunities. • Received a grant of almost £500k from the London Development Agency to support construction training opportunities through East Potential. • Shortlisted for the Housing Corporation’s Gold Award for Excellence for our work helping people to gain employment.

• Foyers provided accommodation to 327 people who were homeless or in housing need. • The employment, training and education business unit provided services to 247 socially disengaged young people. 41% of residents who accessed our education and employment programme have gained employment in 2007-08. * We improved our knowledge about our residents which will enable us to communicate to them in their preferred language or format (large print, Braille) and to develop services that are adapted to their needs.


East Thames Group Limited Financial Statements 9

OPERATING AND FINANCIAL REVIEW, continued

Key aim 2

Key aim 3

• To ensure that our customers can shape our services.

• Developing well-informed, committed and enthusiastic staff.

Strategies

Strategies

• Give opportunities to residents to define our service standards and business priorities, set development standards for new homes and improvement of existing homes, and help us make our neighbourhoods a better place to live.

• Communicate effectively so staff understand what we do, share our future plans and influence issues that affect our business.

• Seek feedback from those 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.

• Develop staff to maximise their skills in an organisation with a culture of integrity, where they can innovate using internal and external knowledge and experience. • Create a workplace culture where staff feel as special as they make our customers feel. • Maintain a working environment conducive to attracting and retaining the highest quality staff.

Performance in 2007-08 • 71% (target 51%) of residents reported being satisfied with their opportunities to participate in defining service standards. • Residents were involved in the business planning process for 2008-09. • Winner of National Black and New Communities (NBNC) ‘Engaging Young People’ award for work in our foyers. • Our new Customer Promises were developed in consultation with residents from across the Group. • Residents are involved in testing and assessing our services by taking part in estate inspections and resident mystery shopping.

Performance in 2007-08 • Investor in People Standard awarded to the Group. • Organisation-wide staff workshops on customer service held in July; managers also attended training on “Leading for Customer Excellence”. • Launched five-day induction course for new employees. • Ran 320 in-house training courses. • 82 staff completed professional qualifications. • Cascaded briefings and held team meetings to ensure all staff are aware of what is happening in the Group. • New maintenance partners attended our customer care course to ensure the highest quality service to our residents.


10 East Thames Group Limited Financial Statements

OPERATING AND FINANCIAL REVIEW, continued

Key aim 4

Key aim 5

• Actively using our financial and organisational strength.

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

Strategies

Strategies

• Optimise the use of Group assets and revenue streams to ensure the most effective investment in the homes and services for our residents and service users.

• Contribute to key local partnerships and planning forums.

• Improve the manner in which we manage risk. • Exploit the knowledge, skills and experiences across the Group to deliver our mission. • Continue to improve business performance and efficiency.

• Target and shape regional and national agendas to benefit our neighbourhoods. • Promote innovative solutions using flagship projects, services and research. • Develop staff and Board members as ambassadors for the Group.

• Continue to review our governance structures.

Performance in 2007-08

• Use our organisational strength to contribute to the success of the 2012 Olympics and its legacy.

• East Potential has worked in partnership with the Foyer Federation to develop their national ‘Future Builders’ programme.

Performance in 2007-08 • Efficiency savings of £600k were achieved in the year. • Senior roles across the business reviewed and departmental restructures started from the top down. • Management accounts and detailed KPIs produced monthly and circulated to the Board and Senior Managers. • A single risk map is now in place and an independent review of this found it to be comprehensive on 317 out of 330 standard sector risks.

• Opened a Young Persons’ One Stop Shop at the Harlow foyer as a joint venture with Connexions, Harlow Council, Harlow Health Centres Trust and others to provide advice on areas of concern to young people. • Member of local strategic partnerships such as the Crime and Disorder Group in Newham. • Continued to lobby for “Working Future” private sector leasing model which we have piloted to help homeless families in private sector rented accommodation overcome barriers to employment. • First RSL to be a regional homelessness champion.


East Thames Group Limited Financial Statements 11

OPERATING AND FINANCIAL REVIEW, continued

Risks and uncertainties The Group Board and the Group Risk Management and Audit Committee use a number of internal and external processes to manage risk: 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 based on 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 consider all items of risk for new activities and for any development schemes which fall outside the agreed template. Health, safety and welfare of employees The Group takes its responsibilities for health and safety very seriously. It has an established heath and safety team and a comprehensive training and implementation programme, overseen by a Health and Safety Committee. The Committee meets four times a year, includes senior managers and representatives from across the Group, and is chaired by the Group Company Secretary. All staff receive health and safety training as part of their induction programme. External Influences The sector is watching closely to see how the “credit crunch� will affect the cost of its borrowings, and the demand for its rental and shared ownership properties. The Housing and Regeneration Bill, currently passing through Parliament, is introducing a new housing regeneration agency and a new regulator. Both of these are likely to affect our working environment in the future. The development associated with the Olympic Games, in which East Thames Group will be a key player continues to be an important focus for the Group alongside the broader regeneration of the Lee Valley and the growth areas of the Thames Valley and M11 corridor.

Future developments Our new purpose built offices opened in April 2008 in the heart of Stratford. The offices include bright user friendly areas for our tenants and other members of the local community. They are close to the Olympic site and the new Stratford City complex that we are involved in developing. It is expected that up to and beyond 2012 the area will see increases in the rental of office space. By developing our own offices now we will not have this extra cost in the future.


12 East Thames Group Limited Financial Statements

OPERATING AND FINANCIAL REVIEW, continued

Financial position Group highlights five year summary for the year ended 31 March

2008 £’000

2007 £’000

2006 £’000

2005 £’000

2004 £’000

84,635 (76,506)

81,021 (71,447)

72,584 (63,021)

66,700 (56,145)

5,998

8,129

9,574

9,563

10,555

(11,064) 7,119 (667) (21)

(10,040) 8,828 (12,579) –

(9,888) 4,357 (2,340) –

(9,450) 4,585 – –

(9,937) 6,410 – –

1,365

(5,662)

1,703

4,698

7,028

Income and expenditure Turnover Operating costs

101,704 (95,706)

Operating surplus Net interest payable Surplus on sale of assets Exceptional items Tax Surplus/(deficit) for the year Balance sheet

restated

Housing properties at valuation Other tangible fixed assets Net current assets/(liabilities)

672,505 58,740 (1,504)

565,264 25,934 (7,726)

517,734 15,158 9,593

445,943 11,709 (14,909)

403,639 8,515 (4,495)

Total assets less current liabilities

729,741

583,472

542,485

442,743

407,659

Long-term creditors Provisions and other long-term liabilities Reserves

452,145 1,767 275,829

303,730 – 279,742

262,943 100 279,442

177,595 100 265,048

164,779 100 242,780

Total funding

729,741

583,472

542,485

442,743

407,659

13,618

13,238

11,404

11,301

11,190

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

Restatement

Post balance-sheet events

The balance sheet as at March 2007 has been restated to remove a consolidated adjustment of £280k that was not required. The restatement has reduced the balances of housing properties and reserves.

We consider that there have been no events since the year end that have had a significant effect on the Group’s financial position.

Reserves Accounting policies There were no changes to accounting policies from last year, although the changes to the pension arrangements for staff (see below) should be noted.

After transfer of the surplus for the year of £1.4m (2007: £5.7m deficit) at the year end Group reserves amounted to £275.8m (2007: £279.7m), including an accumulated revaluation surplus on housing properties of £218.6m (2007: £224.4m).


East Thames Group Limited Financial Statements 13

OPERATING AND FINANCIAL REVIEW, continued

Donations The Group made charitable donations during the year of £2,800 (2007: £4,620). No donations were given to charities of which Board members are Trustees.

The in-house maintenance department will close from April 2008; employees in this area will be transferred under the TUPE guidelines to our partners who will provide future maintenance services.

Housing properties

Pensions

At 31 March 2008 the Group owned 11,079 properties (2007: 10,523). The Board appointed external professional valuers to undertake a desktop valuation of the Group’s housing properties as at 31st March 2008. The value of the properties which includes properties held for letting at existing use value for social housing, shared ownership properties at existing use value for social housing less net present liability to repay social housing grant and properties under construction held at cost was £672.5million and this has been reflected in the valuation of properties in the financial statements.

Following consultation with employees and staff representative organisations, we closed the Social Housing Pension Scheme (SHPS) to new members from 1st April 2008. With Friends Provident we now offer a new money-purchase scheme to both new and existing staff, with up to 12% employer contribution. Further details regarding the pension schemes can be found in note 8 of the financial statements.

Surplus for the year – dependency on property sales/reduction of overheads As with many organisations in this sector, surpluses are becoming increasingly dependent upon the outright sale of housing assets. To become less dependent on property sales, East Thames Group Limited actively seeks ways to reduce central overheads. Ways found include: • a paper-light project to replace paper with electronic documentation; • electronic equipment set to shut down (rather than go on standby) after not being used; • a new Group structure with fewer directors; • reviewing procedures and processes to simplify actions that have become complex as the Group has grown; • starting a major Value for Money project review, using both external advice and internal suggestions and support; • closing our in-house maintenance department and outsourcing the work to maintenance partners. The Value for Money review is a major project that will result in changes Group wide. A new structure has been mapped and the implementation of these changes will have a positive impact on the services we provide to our customers.

Capital structure and treasury policy As at 31 March 2008, the Group had a total loan facility of £457m: • £200m loan with Nationwide Building Society; • £250m with Barclays Bank; • £7m with Orchardbrook and THFC. We have also signed Heads of Terms with Lloyds Bank plc for additional facilities of £100m. During 2007-08, East Treasury drew down £147.5m of these loan facilities. As a result of its development activities, the Group is a significant net borrower. We aim our cash management policy at minimising the overall bank balance and manage exposure to interest rates through fixed rate loans and SWAPS. Loan covenants were met throughout the year. The main financial covenants were: • Minimum interest cover 95%, actual 2008: 175% (2007: 137%); • Minimum asset cover 120%, actual 2008: 153% (2007: 172%); • Maximum gearing 70%, actual 2008: 59% (2007: 51.5%).


14 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED 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 2008, 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 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.

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.


East Thames Group Limited Financial Statements 15

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EAST THAMES GROUP LIMITED, continued

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 2008 and of the 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 29 August 2008


16 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED CONSOLIDATED INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2008 Note

2008 £’000

2007 £’000

Turnover: continuing activities

2

101,704

84,635

Operating costs

2

(95,706)

(76,506)

5,998

8,129

Operating surplus: continuing activities Surplus on sale of fixed assets – housing properties

4

7,119

8,828

Net interest payable and similar charges

7

(11,064)

(10,040)

(667)

(12,579)

(11,731)

(22,619)

1,386

(5,662)

Exceptional item – breakage costs

Surplus/(deficit) on ordinary activities before taxation Tax on surplus on ordinary activities

18

Surplus/(deficit) for the financial year

The notes on pages 23 to 48 form part of these financial statements.

(21)

1,365

(5,662)


East Thames Group Limited Financial Statements 17

EAST THAMES GROUP LIMITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED SURPLUSES AND DEFICITS FOR THE YEAR ENDED 31 MARCH 2008 Note Surplus/(deficit) for the financial year

2008 £’000

2007 £’000

1,365

(5,662)

Unrealised (deficit)/surplus on revaluation of housing properties

24

(4,367)

5,682

Unrealised (deficit) on grant

24

(911)

(3,913)

20

Total recognised (deficits)/surpluses for the year

NOTE OF HISTORICAL COST SURPLUSES AND DEFICITS FOR THE YEAR ENDED 31 MARCH 2008

Reported surplus/(deficit) on ordinary activities

2008 £’000

2007 £’000

1,365

(5,662)

Excess of actual depreciation over historical cost depreciation

560

461

Realisation of property revaluation surpluses

831

1,451

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

2,756

(3,750)

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

2,735

(3,750)

2008 £’000

2007 £’000

RECONCILIATION OF MOVEMENTS IN GROUP’S FUNDS FOR THE YEAR ENDED 31 MARCH 2008 restated

Opening total funds Total recognised (deficits)/surpluses relating to the year Closing total funds

279,742 (3,913) 275,829

279,722 20 279,742


18 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED CONSOLIDATED BALANCE SHEET AT 31 MARCH 2008 Note

2008 £’000

2007 £’000 restated

Tangible fixed assets Housing properties at valuation Other fixed assets

10 11

Investments Cost of HomeBuy and Starter Home Initiative Less: Social Housing Grant

Current assets Properties for sale Debtors Investments Cash at bank and in hand

10 10

13 14 12 15, 29

Creditors: amounts falling due within one year

16

Net current liabilities

Total assets less current liabilities

Creditors: amounts falling due after more than one year Provision for liabilities

Capital and reserves Share capital Revenue reserve Designated reserve Restricted reserve Consolidation reserve Revaluation reserve

17 22

23 24 24 24 24 24

Consolidated funds

672,505 58,740

565,264 25,934

731,245

591,198

27,806 (27,806)

31,706 (31,706)

11,619 23,859 – 6,680

12,514 7,271 – 8,199

42,158

27,984

(43,662)

(35,710)

(1,504)

(7,726)

729,741

583,472

452,145 1,767

303,730 –

453,912

303,730

– 57,089 – 112 – 218,628

– 52,356 2,978 22 – 224,386

275,829

279,742

729,741

583,472

The financial statements were approved by the Board on Friday, 18 July 2008, and signed on its behalf by:

Robert Chilton Chairman

Andrew Newell Treasurer

Henry Potter Group Company Secretary


East Thames Group Limited Financial Statements 19

EAST THAMES GROUP LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2008 Note

2008 £’000

2007 £’000

27

1,761

19,221

Returns on investments and servicing of finance Interest received Interest paid Breakage costs paid

1,267 (16,971) (667)

525 (12,677) (13,860)

Net cash outflow on servicing of finance

(16,371)

(26,012)

Net cash flow from operating activities

Corporation tax

Capital expenditure and financial investments Purchase and construction of housing properties Purchase of other fixed assets Social Housing Grant received Social Housing Grant repaid Other capital grants received Other capital grants repaid Proceeds of first tranche sales Proceeds of HomeBuy Sales of housing properties Sales of Starter Homes Initiatives Proceeds from disposal of investments

(160,546) (24,160) 30,767 (1,718) 34 – 12,168 1,471 13,097 3,498 –

(78,005) (11,714) 15,526 (3,737) 1,089 (1,575) 19,120 1,473 17,255 3,799 1,685

Cash outflow from investing activities

(125,389)

(35,084)

Acquisitions Purchase of subsidiary Net overdraft acquired

(6,080) (436)

– –

Cash outflow from acquisitions

(6,516)

Cash outflow before financing

(146,515)

(41,875)

Financing Housing loans received Housing loans repaid Loan issue costs paid

297,375 (151,928) (189)

91,724 (45,828) (1,020)

145,258

44,876

Cash inflow from financing

28

(Decrease)/increase in cash in the year

28

(1,257)

3,001


20 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED PARENT INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2008 Note

2008 £’000

2007 £’000

Turnover: continuing activities

2

14,314

18,011

Operating costs

2

(14,362)

(17,123)

Operating (deficit)/surplus: continuing activities Net interest receivable

(48) 7

(Deficit)/surplus on ordinary activities

888

– (48)

– 888

The financial statements were approved by the Board on Friday, 18 July 2008, and signed on its behalf by:

Robert Chilton Chairman

Andrew Newell Treasurer

Henry Potter Group Company Secretary


East Thames Group Limited Financial Statements 21

EAST THAMES GROUP LIMITED PARENT BALANCE SHEET AT 31 MARCH 2008

Tangible fixed assets

Note

2008 £’000

2007 £’000

11

6,218

22,407

14 16

10,761 (10,692)

10,920 (27,326)

Current assets Debtors Creditors: amounts falling due within one year Net current assets/(liabilities)

69

Total assets less current liabilities

(16,406)

6,287

6,001

Provision for liabilities

22

334

Capital and reserves Share capital Revenue reserve Restricted reserve Designated reserve

23 24 24 24

– 5,953 – –

– 6,001 – –

5,953

6,001

6,287

6,001

The financial statements were approved by the Board on Friday, 18 July 2008, and signed on its behalf by:

Robert Chilton Chairman

Andrew Newell Treasurer

Henry Potter Group Company Secretary


22 East Thames Group Limited Financial Statements

EAST THAMES GROUP LIMITED PARENT CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2008

Net cash inflow from operating activities

Note

2008 £’000

2007 £’000

27

4,198

13,020

(3,936)

(10,888)

(3,936)

(10,888)

Capital expenditure and financial investments Purchase of fixed assets

Increase in cash in the period

28

262

2,132


East Thames Group Limited Financial Statements 23

EAST THAMES GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008 1. Accounting policies a) Basis of accounting The financial statements of the parent company and the Group are prepared under the historical 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. Basis of consolidation The Group financial statements consolidate the financial statements of East Thames Group Limited and its subsidiaries East Homes Limited, East Foundation Limited, East Place Limited, East Living Limited, East Potential, East Regen Limited, East Treasury Limited and EH Street Properties Limited using acquisition accounting. 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. 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 – e.g. 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. 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

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.


24 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

1. Accounting policies, continued 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. 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. 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. h) True and fair override Under the requirements of the SORP, capital grants are shown as a deduction from the cost of housing properties on the balance sheet (see note 10). This is a departure from the rules under schedule 4 of the Companies Act 1985 but in the opinion of the Board is a relevant accounting policy, comparable to that adopted by other registered social landlords, that has been adopted in order to present a true and fair view.

i) 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 other than head office

4%

Head office (specifically designed for this life expectation)

2%

Lifts

4%

Office furniture and improvements

14.3%

Service equipment

20%

Motor vehicles

25%

Computer equipment Major software

33.3% 10%

j) Pensions The Group participates in the defined benefit, multiemployer Social Housing Pension Scheme. 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 pension costs applicable across the various participating associations taken as a whole. Although the Group participates in a defined benefit scheme it is unable to identify its share of the underlying assets and liabilities. The pension costs charged against operating profit are the contributions payable to the scheme in respect of the accounting period. Further information on the surplus/deficit in the scheme is given in note 8. From 1 April 2008 this scheme was closed to new employees and existing employees not already in the scheme; a money purchase scheme run by Friends Provident will be made available instead.


East Thames Group Limited Financial Statements 25

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

1. Accounting policies, continued k) 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) 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. The subsidiaries East Place Limited and East Regen Limited are liable for corporation tax due to their activities. m) 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. n) 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. o) Leased assets Rentals payable under operating leases are charged to the income and expenditure account on a straight-line basis over the lease term. p) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be estimated reliably.

q) Balance sheet restatements The comparatives have been restated to remove a consolidation adjustment of ÂŁ280k that was not required. The restatement has reduced the opening balances for housing properties and reserves. Further details are given in Note 24.


26 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

2. Particulars of turnover, cost of sales, operating costs and operating surplus 2008 Operating surplus/ (deficit) £’000

2007 Operating surplus/ (deficit) £’000

Turnover £’000

Operating costs £’000

39,959 17,955 9,637 7,283

34,100 17,531 9,804 2,609

74,834

64,044

10,790

11,876

5,275 – 2,960

4,862 329 5,498

413 (329) (2,538)

(153) (877) (2,589)

14,700 951

14,700 3,647

– (2,696)

– (128)

23,886

29,036

(5,150)

(3,747)

2,984

2,626

358

2,984

2,626

358

101,704

95,706

5,998

8,129

Turnover £’000

Operating costs £’000

2008 Operating surplus/ (deficit) £’000

2007 Operating surplus/ (deficit) £’000

Other income and expenditure Group recharge Donation received from Group member Other

11,321 2,216 777

14,062 300 –

(2,741) 1,916 777

Total

14,314

14,362

(48)

GROUP Social housing lettings Housing accommodation Special needs accommodation Temporary social housing Shared ownership accommodation

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

Non-social housing activities Development for sale

Total

PARENT

5,859 424 (167) 4,674

9,336 719 (144) 1,965

(4,530) 5,000 418 888

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


East Thames Group Limited Financial Statements 27

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

3. Income and expenditure from social housing lettings Care and supported housing

GROUP

Housing accommodation

Supported housing

£’000

£’000

Residential Temporary care social homes housing

£’000

£’000

Shared ownership

£’000

2008 £’000

2007 £’000 restated

Rent receivable net of identifiable service charges Service charges receivable

33,715 1,853

2,440 4,182

420 –

8,568 –

5,369 502

50,512 6,537

49,816 5,874

Net rental income

35,568

6,622

420

8,568

5,871

57,049

55,690

3,225 – 73 1,093

2,201 2,126 – 703

5,926 (43) – –

– – 27 1,042

– – – 1,412

11,352 2,083 100 4,250

10,809 2,181 1,046 4,093

39,959

11,652

6,303

9,637

7,283

74,834

73,819

511 5,958 – 155 – –

15 1,419 7,649 680 1 40

496 2,002 – 99 9 –

4,091 35,393 8,774 9,030 3,650 512

3,096 35,150 10,503 7,995 3,279 399

Revenue grants from local authorities and other agencies Support charges – fixed contract Other grants Other income Turnover from social housing lettings Services Management Rent payable to PSL landlords Routine maintenance Planned maintenance Rent losses from bad debts Revenue element of major repairs expenditure Housing properties depreciation Other costs Operating costs on social housing lettings Operating surplus/(deficit) on social housing lettings Void losses

1,973 17,298 1,125 7,023 3,640 485

1,096 8,716 – 1,073 – (13)

1,323 1,233 –

– – –

– – 35

– – –

3 – –

1,326 1,233 35

322 1,160 39

34,100

10,872

6,659

9,804

2,609

64,044

61,943

5,859

780

(356)

(167)

4,674

10,790

11,876

598

153

74

521

178

1,524

1,797

Restatement of costs Management costs for 2007 were previously shown as £45,911k. This year an additional line has been added to show rent payable to PSL landlords separately; £10,503k has been moved to this cost line. £258k of utility costs has been moved from management costs to service costs as they were classified incorrectly last year.


28 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

4. Sale of fixed assets – housing properties Sales proceeds £’000

Cost of sales £’000

2008 Surplus £’000

2007 Surplus £’000

13,097 1,471 3,498

6,964 1,065 2,918

6,133 406 580

7,816 419 371

18,066

10,947

7,119

8,606

222

7,119

8,828

2008

2007

7,281 1,455 1,743 34 266

7,074 1,481 1,491 38 180

10,779

10,264

80 115 706

80 115 841

901

1,036

11,680

11,300

22 30 124 34 60 25 5

20 26 123 29 54 4 3

300

259

23 141 587 334 507 38 8

23 141 520 363 586 38 8

Total managed for others

1,638

1,679

Total non-social housing managed

1,938

1,938

Total social and non-social housing

13,618

13,238

GROUP Sales of older and shared ownership properties HomeBuy Starter Homes Initiative – current year sales

Starter Homes Initiative – release of prior year surpluses

5. Units of accommodation in management Social housing owned

General housing Supported housing and housing for older people Low cost home (shared) ownership Temporary social housing Intermediate rent

Total Owned Accommodation managed for others

General housing Supported housing and housing for older people Temporary social housing

Total accommodation managed for others Total social housing managed Non-social housing owned

Offices and community centres Market and commercial rent Garages Out of management Static homebuy Outright sales Other

Total Owned Accommodation managed for others

Offices and community centres Market and commercial rent Long leased properties HomeBuy Starter home initiatives Fixed equity Other


East Thames Group Limited Financial Statements 29

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

6. Operating surplus Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

Depreciation of housing properties

1,233

1,160

Depreciation of tangible fixed assets

1,198

1,086

740

964

8,774

10,468

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

11

11

11

11

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

54

54

Fees payable to the company’s auditor for other services

44

6

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

205

245

This is arrived at after charging:

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)

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

– (17,372)

– (13,862)

– –

– –

(17,167)

(13,617)

Interest receivable from other RSLs

1,062

524

Interest payable capitalised on housing properties under construction

4,574

3,771

Interest payable capitalised on commercial properties under construction

1,567

148

(887)

(679)

(87)

(72)

(126)

(115)

(11,064)

(10,040)

Interest receivable transferred to the RCGF/DPF Amortisation of loan issue costs Interest receivable transferred to the Housing Corporation SHI

Capitalisation rate used to determine the finance costs capitalised during the period

5%

5%


30 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

8. Employees

Number of employees expressed in full time equivalents Administration Care staff Direct labour

Staff costs Wages and salaries Social security costs Other pension costs

Social Housing Pension Scheme (SHPS) East Thames Group Limited participates in the Social Housing Pension Scheme (SHPS). The Scheme is funded and is contracted out of the state scheme. SHPS is a multi-employer defined benefit scheme. Employer participation in the Scheme is subject to adherence with the employer responsibilities and obligations as set out in the “SHPS House Policies and Rules Employer Guide”. The Scheme operated a single benefit structure, final salary with a 1/60th accrual rate until 31 March 2007. From April 2007 there are three benefit structures available, namely: • Final salary with a 1/60th accrual rate: • Final salary with a 1/70th accrual rate: • Career average revalued earnings with a 1/60th accrual rate

Group 2008

Group 2007

Parent 2008

Parent 2007

528 455 60

516 475 61

120 – –

119 – –

1,043

1,052

120

119

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

26,715 2,487 1,576

25,586 2,399 1,234

4,191 396 398

4,451 432 331

30,778

29,219

4,985

5,214

An employer can elect to operate different benefit structures for their active members (as at the first day of April in any given year) and their new entrants. An employer can only operate one open benefit structure at any one time. An open benefit structure is one which new entrants are able to join. East Thames Group Limited has elected to operate the final salary with a 1/60th accrual rate, benefit structure for active members as at 31 March 2008. 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, in respect of each benefit structure, so that the Scheme can meet its pension obligations as they fall due. From April 2007 the split of the total contribution rate between member and employer is set at individual employer level, subject to the employer paying no less than 50% of the total contribution rate.


East Thames Group Limited Financial Statements 31

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

8. Employees, continued 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.

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. 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.

During the accounting period East Thames Group Limited paid contributions at the rate of 14.1%. Member contributions varied between 3.1% and 6.1%.

The financial assumptions underlying the valuation as at 30 September 2005 were as follows:

As at the balance sheet date there were 322 active members of the Scheme employed by East Thames Group Limited. The annual pensionable payroll in respect of these members was £1,449k.

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

It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of underlying assets and liabilities belonging to individual participating employers. Accordingly, due to the nature of the Scheme, the accounting charge for the period under FRS17 represents the employer contribution payable. The last formal valuation of the Scheme was performed as at 30 September 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 with the value of liabilities of £283 million, equivalent to a past service funding level of 82%. The Scheme Actuary has prepared an Actuarial Report that provides an approximate update on the funding position of the Scheme as at 30 September 2007. 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 £1,760 million and indicated a decrease in the shortfall of assets compared to liabilities to approximately £209 million, equivalent to a past service funding level of 89%. Annual funding updates of the SHPS Scheme are carried out using approximate

% pa

The valuation was carried out using the PA92C2025 mortality table for non-pensioners and PA92C2013 mortality table for pensioners. The table below illustrates the assumed life expectancy in years for pension scheme members at age 65 using these mortality assumptions: Males

Females

Assumed life expectancy in years at age 65

Assumed life expectancy in years at age 65

Non-pensioners

20.4

23.3

Pensioners

19.4

22.4


32 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

8. Employees, continued The long-term joint contribution rates required from employers and members to meet the cost of future benefit accrual were 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

Employers that participate in the Scheme on a noncontributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). Employers that have closed the Scheme to new entrants, including East Thames Group Limited, are required to pay an additional employer contribution loading of 3.0% to reflect the higher costs of a closed arrangement. A small number of employers are required to contribute at a different rate to reflect the amortisation of a surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into the SHPS Scheme.

The long-term joint contribution rates required from employers and members where contributions are set on an age related basis are: Benefit structure

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

Age

Under 30 30-40

Over 40

Final salary with a 1/60th accrual rate

16.1

17.1

18.1

Final salary with a 1/70th accrual rate

13.8

14.8

15.8

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

12.6

13.6

14.6

If an actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a recovery plan setting out the steps to be taken to make up the shortfall. Following consideration of the results of the actuarial valuation it was agreed that the shortfall of ÂŁ283 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.

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. It 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.


East Thames Group Limited Financial Statements 33

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

8. Employees, continued The next full actuarial valuation will be carried out as at 30 September 2008. As a result of pension scheme legislation there is a potential debt on the employer that could be levied by the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme or the Scheme winding up. 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 Social Housing Pension Scheme 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 Limited was £27,190,000.

Pensions Trust – Growth Plan East Thames Group Limited participates in the Pensions Trust’s Growth Plan. The Plan is funded and is not contracted out of the state scheme. 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 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 Trustee commissions an actuarial valuation of the Growth Plan every three 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. 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. 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.


34 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

8. Employees, continued It is not possible in the normal course of events to identify on a reasonable and consistent basis 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 to approximately £2 million, equivalent to a funding level of 100.2%. 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.

The financial assumptions underlying the valuation as at 30 September 2005 were as follows: % pa Investment return pre retirement

6.6

Investment return post retirement

4.5

Bonuses on accrued benefits

0.0

Rate of price inflation

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 5 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.


East Thames Group Limited Financial Statements 35

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

8. Employees, continued 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 Plan as at 30 September 2007. As of this date the estimated employer debt for East Thames Group Limited was £44,568.

NHS Pension Scheme East Thames Group Limited employ 34 staff who are members of the NHS Pension Scheme. Employees pay contributions averaging 5.4% and East Thames Group Limited pay contributions of 14%. The NHS Pension Scheme is a statutory scheme, with benefits fully guaranteed by the Government. Contributions from both members and employers are paid to the Exchequer, which meets the cost of scheme benefits. The Exchequer also pays for the cost of increasing benefits each year by the rate of inflation. This extra cost is not met by contributions from scheme members or employers.

Review of Pension Arrangements During the year a review of current pension arrangements was undertaken. Following this review and consultation with employees the Social Housing Pension Scheme (SHPS) has been closed to new entrants from 1 April 2008. SHPS levy a charge on members who do not allow new entrants and this surcharge is currently 3% of pensionable salary for all remaining members. Future employees and current employees who were not members of the Scheme at 31 March 2008 will have the opportunity to participate in a money purchase scheme with Friends Provident from 1 April 2008.


36 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

9. 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 £’000

Benefits in kind £’000

Pension contributions £’000

Total 2008 £’000

Total 2007 £’000

144

1

20

165

144

Deputy Chief Executive Martin Heys resigned 31/12/2007

84

1

85

109

Acting Group Director – Finance Paul Thomson from 1/1/2008

24

3

27

111

1

15

127

108

Managing Director – East Homes Ltd Pamela Gardner from 10/9/2007 – 31/3/2008

43

6

49

Managing Director – East Living Ltd Martin van Tol – resigned 21/12/2007

61

1

9

71

97

Managing Director – East Living Ltd Caroline Cayzer – from 1/1/2008

17

2

19

Managing Director – East Potential David Chesterton

79

1

11

91

86

Group Director – Development Geoff Pearce

104

1

14

119

75

Group Director – Development Steven Tarry (to 5/2006)

11

Group Director – Corporate Services Davina Boakye

84

1

12

97

74

Group Director – Business Services Jacky Kutner – resigned 23/11/2007

50

1

7

58

86

Group Company Secretary Henry Potter

55

7

62

59

856

8

106

970

849

Chief Executive June Barnes

Managing Director – East Homes Ltd to 31/8/2007 Group Director – Business Improvement 1/9/2007 – 31/12/2007 Group Director – Resident Services from 1/1/2008 Victor da Cunha

The highest paid director received remuneration of £165,000 (2007: £144,000). 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. During the year directors received compensation payments for loss of office totalling £213k (2007: £nil). Remuneration paid to committee members for the year amounts to £136,800 (2007: £104,582). Expenses paid during the year to members of the Board amount to £15,247 (2007: £66,109). 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.


East Thames Group Limited Financial Statements 37

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

10. Tangible fixed assets – Housing properties

Valuation

Housing Housing properties properties held for under letting construction £’000 £’000

Shared Shared ownership ownership properties properties held for under letting construction £’000 £’000

Total £’000

As at 1 April 2007 restated * Additions Tenure change transfers Transfer to other fixed assets – office properties Works to existing properties Interest capitalised Schemes completed Disposals Valuation adjustment

395,187 12,691 5,134

68,091 100,648 –

79,128 4,603 (5,134)

68,978 37,462 –

611,384 155,404 –

– 17,591 355 51,052 (596) (25,820)

(8,277) – 1,911 (51,052) (377) –

– – (72) 56,922 (18,139) (14,140)

– – 2,380 (56,922) (19) –

(8,277) 17,591 4,574 – (19,131) (39,960)

At 31 March 2008

455,594

110,944

103,168

51,879

721,585

– – –

– – –

– – –

Depreciation and impairment As at 1 April 2007 Depreciation charged in year Valuation adjustment

– 1,233 (1,233)

At 31 March 2008 Social housing and other grants As at 1 April 2007 Additions Schemes completed Disposals Valuation adjustment

– – 16,953 9,050 (361) (25,642)

34,938 15,608 (9,050) – –

– 5,690 6,015 (2,987) (8,718)

– 1,233 (1,233) –

11,182 2,417 (6,015) – –

46,120 40,668 – (3,348) (34,360)

At 31 March 2008

41,496

7,584

49,080

Net book value At 31 March 2008

455,594

69,448

103,168

44,295

672,505

At 31 March 2007

395,187

33,153

79,128

57,796

565,264

2008 £’000

2007 £’000

17,591 1,326

6,826 322

18,917

7,148

511,933 –

474,613 –

511,933

474,613

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

*Restatement The opening balance of shared ownership properties has increased by £280k to £79,128 due to the removal of a consolidated adjustment that was not required. Further details are given in Note 24.


38 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

10. Tangible fixed assets – Housing properties (continued)

Housing properties comprise: Freehold land and buildings Long leasehold land and buildings

2008 £’000

2007 £’000

672,150 355

564,909 355

672,505

565,264

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 2008 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: £’000 Completed properties at valuation East Homes Limited

558,762 558,762

Housing properties under construction at cost East Homes Limited

162,823 721,585

In the valuing of housing properties, discounted cash flow methodology was adopted and key assumptions included: Discount rate Annual inflation rate Level of annual rent increase

5.5% 2.5% 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: 2008 £’000

2007 £’000 restated

Historical cost Social Housing Grant Other capital grants Depreciation and impairment

Investment in HomeBuy and Starter Home Initiative: Long term investment in properties New investment Decrease in investment in properties Cost of HomeBuy and Starter Home Initiative Less: Social Housing Grant

972,055 (460,873) (51,061) (6,246)

821,063 (423,052) (51,561) (5,573)

453,875

340,877

2008 £’000

2007 £’000

31,706 – (3,900)

35,945 161 (4,400)

27,806 (27,806)

31,706 (31,706)


East Thames Group Limited Financial Statements 39

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

11. Tangible fixed assets – other

GROUP

Cost At 1 April 2007 Additions Transfer from housing properties Office completed Disposals

Freehold office under construction

Freehold office

Equipment & furniture

£’000

£’000

£’000

£’000

11,849 19,719

12,975 3,520

2,937 1,773

3,277 944

5,648 (37,216) –

2,629 37,216 –

– – (250)

I.T. I.T. software equipment development

– – –

Motor vehicles

Total

£’000

£’000

£’000

4,097 1,212

131 –

35,266 27,168

– – (1,351)

– – (35)

8,277 – (1,636)

3,958

96

69,075

At 31 March 2008

56,340

4,460

4,221

Depreciation At 1 April 2007 Charged in year Disposals

– – –

(3,705) (365) –

(1,774) (266) –

(3,128) (227) –

(600) (336) 160

(125) (4) 35

(9,332) (1,198) 195

At 31 March 2008

(4,070)

(2,040)

(3,355)

(776)

(94)

(10,335)

Net book value At 31 March 2008

52,270

2,420

866

3,182

2

58,740

At 31 March 2007

11,849

9,270

1,163

149

3,497

6

25,934

11,849 – – (11,849)

9,731 – – (9,731)

2,038 1,780 (250) –

3,277 944 – –

4,097 1,212 (1,351) –

– – – –

30,992 3,936 (1,601) (21,580)

3,568

4,221

3,958

11,747

(1,221) (177) – –

(3,128) (227) – –

(600) (336) 160 –

– – – –

(8,585) (740) 160 3,636

(3,355)

(776)

(5,529)

PARENT Cost At 1 April 2007 Additions Disposals Transfer in group companies At 31 March 2008

Depreciation At 1 April 2007 Charged in year Disposals Transfer in group companies

– – – –

At 31 March 2008

(1,398)

Net book value At 31 March 2008

2,170

866

3,182

6,218

At 31 March 2007

11,849

6,095

817

149

3,497

22,407

(3,636) – – 3,636


40 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

12. Investments and related party transactions 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 requires it to classify it as a subsidiary. 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, Redbridge, Drapers Foyers and First Step Assessment Centre and related training and information services to young people in east London and Harlow. 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 invested £6.27 million in the purchase of Reef Properties Limited of which £6.08 million was consideration costs and £0.19 million was professional fees. The company is now a wholly-owned subsidiary of East Homes Limited renamed and registered as East Homes Street Properties Limited. All the properties within the company had been transferred to East Homes Limited prior to 31 March 2008. It is the intention to wind up the shell company in the future. The shares acquired in Reef Properties Limited were: • 25,000 ordinary shares of 1p each • 75,000 A-ordinary shares of 1p each The net asset value of the subsidiary as at 31st March 2008 is £6.06 million. The Existing Use Value of the properties transferred to East Homes Limited is £2.3 million.

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.

13. Properties for sale

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

Group 2008 £’000

Group 2007 £’000

5,160

9,860

6,459

2,654

11,619

12,514


East Thames Group Limited Financial Statements 41

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

14. Debtors

Due within one year: Arrears of rent and service charges Less: Provision for bad and doubtful debts

Other debtors Prepayments and accrued income Amounts due from group companies (net of provisions)

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

4,128 (2,126)

3,414 (2,050)

– –

– –

2,002

1,364

20,876 981

4,756 1,151

528 153

560 196

10,080

10,164

23,859

7,271

10,761

10,920

15. Cash at bank and in hand Included in cash at bank and in hand are amounts totalling Group: £Nil (Parent Company: £ Nil) 2007 Group £200,000 (Parent Company: £ Nil) which are subject to restrictions and are not freely available for general use.

16. Creditors: amounts falling due within one year

Loans (note 20) Bank overdraft Rent and service charges received in advance Social Housing Grants received in advance Corporation Tax (note 18) Amount due to group companies Other taxation and social security Other creditors Accruals and deferred income Recycled Capital Grant Fund (note 19) Disposal Proceeds Fund (note 19)

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

5,038 882 1,593 991 73 – 745 15,703 14,632 3,639 366

5,050 1,144 1,552 5,758 – – 601 10,550 7,305 3,140 610

– 882 – – – 4,531 201 2,072 3,006 – –

– 1,144 – – – 20,375 54 1,708 4,045 – –

43,662

35,710

10,692

27,326

Social Housing Grant received in advance will be utilised against capital expenditure in 2008-09.


42 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

17. Creditors: amounts falling due after more than one year Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

436,914 – 10,224 1,412 3,595

289,678 – 9,467 1,047 3,538

– – – – –

– – – – –

452,145

303,730

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

Current tax on income for the year Adjustments in respect of prior years

20 1

– –

– –

– –

Tax on surplus/(deficit) on ordinary activities

21

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

1,386

(5,662)

(48)

888

416

(1,699)

(14)

266

(396) 1 –

1,699 – –

14 – –

(266) – –

Loans (note 20) Deferred income Recycled Capital Grant Fund (note 19) Disposal Proceeds Fund (note 19) Other

18. Taxation

United Kingdom Corporation Tax:

Current tax reconciliation: Surplus/(deficit) on ordinary activities before taxation Theoretical tax at UK corporation tax rate 30% (2007: 30%) Effects of: Surplus/(deficit) in respect of charitable activities Overprovision in prior years Movement in tax losses Current tax on surplus/(deficit) on ordinary activities

21


East Thames Group Limited Financial Statements 43

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

19. Recycled Capital Grant Fund Group 2008 £’000

Group 2007 £’000

At 1 April 2007

12,607

9,883

Grants recycled Interest accrued Purchase/development of properties

4,028 779 (3,552)

5,634 587 (3,497)

13,862

12,607

13,862

12,607

3,639

3,140

Group 2008 £’000

Group 2007 £’000

1,657

1,617

Repayment of grant to Housing Corporation Balance at 31 March 2008 Amount due for repayment to Housing Corporation

Disposal Proceeds Fund

At 1 April 2007 Net sale proceeds recycled Interest accrued Major repairs and works to existing stock Balance at 31 March 2008 Amount due for repayment to Housing Corporation

650 108 (637)

689 91 (740)

1,778

1,657

366

610

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 then required from central government.


44 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

20. 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

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

882 –

1,144 –

882 –

1,144 –

38 5,000

50 5,000

– –

– –

5,920

6,194

882

1,144

5,966 236,500 195,000 – 1,410 (1,962)

6,004 146,118 138,000 – 1,417 (1,861)

– – – – – –

– – – – – –

436,914

289,678

5,920 42 154 438,680

6,194 38 138 291,363

882 – – –

1,144 – – –

444,796

297,733

882

1,144

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

As at 31 March 2008, East Treasury Limited (a member of East Thames Group Limited) had arranged total loan facilities of £450m. These facilities included a £200m loan with Nationwide Building Society and a £250m loan with Barclays Bank Plc. The £150m loan agreed in 2005-06 was refinanced with Barclays in January 2008 and the total Barclays facility extended to £250m. During 2007-08, East Treasury Limited utilised an additional £147.5m of loans and as at 31 March 2008 had borrowed £436.5m in total. These loans have been on lent to East Homes Limited and have been utilised primarily to fund development activities and other business initiatives. Fixed rate loans on lent from East Treasury total £181.5m, with interest rates ranging from 4.12% to 4.48%. East Homes Limited has a further £7.4m of fixed rate loans with rates ranging from 9.5% to 10.75%. In total fixed rate loans account for £188.9m, 42.5% of the total £444m loan portfolio. Variable rate loans represented 57.5% of the total loan book with interest rates linked to LIBOR, which varied from 5.63% to 7.1% in the year. The consolidated loan of £5.8m from the Royal Bank of Scotland and the NatWest Financial Markets £250k loan (originally the Housing Corporation) are repaid in half-yearly instalments over the estimated life of the schemes on which the loans are secured at a fixed rate of 10.65%. The final instalments are due for repayment in the period 2006 to 2037. The £1.25m THFC Bond is fixed at 12.97% and is due to be repaid in 2019.


East Thames Group Limited Financial Statements 45

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

20. Debt analysis, continued SWAPS agreements have been entered into with Lloyds, Barclays and Abbey to manage the risk associated with the level of floating interest rate loans. As at 31 March 2008 SWAPS to the value of £200m have been taken out and appropriate management controls are in place to manage the SWAPS and monitor interest rates. The fair values of the interest rate SWAPS have been determined by reference to prices available from the markets on which the instruments involved are traded. As at 31 March 2008, the fair value of the SWAPS totalled £2.5 million. All loans are secured through the Prudential Trust by fixed charges on individual properties owned by East Homes Limited.

21. Annual obligations under operating leases

Operating leases on land and buildings which expire: Within one year In the second to fifth years inclusive Over five years

Group 2008 £’000

Group 2007 £’000

1,256 3,648 1,614

1,685 2,762 1,780

Parent 2008 £’000

Parent 2007 £’000

– 334

– –

22. Provision for liabilities Group 2008 £’000

Group 2007 £’000

At 1 April Transfer from income and expenditure account

– 1,767

100 (100)

At 31 March

1,767

334

Comprising: Dilapidation fund Change management

100 1,667

– –

– 334

– –

1,767

334

The dilapidation fund will be used for property improvements at the Lavendar Road project, leases run until 2015. Change management costs relate to expected costs from the outcome of the current restructure within East Thames Group. Total costs comprise settlement of redundancy payments and other statutory obligations to be paid to staff affected by the restructure. It is intended that the review will be finalised within the next financial year.

23. Non-equity share capital 2008 £

2007 £

Shares of £1 each issued and fully paid At 1 April 2007 Shares issued during the year Shares surrendered during the year

44 13 (1)

47 – (3)

At 31 March 2008

56

44

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.


46 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

24. Reserves GROUP

Revaluation

Restricted

£’000

£’000

Designated Consolidated

£’000

£’000

Total

£’000

£’000

51,703 653

279,462 280 279,742

At 1 April 2007 Prior year restatement

224,386 –

99 (77)

3,011 (33)

At 1 April 2007 restated

224,386

22

2,978

52,356

– – 90 –

– – (2,067) (911)

– – – –

1,365 – 3,368 –

57,089

275,829

Restricted Designated £’000 £’000

Revenue £’000

Total £’000

Surplus for the year Property revaluation adjustment Transfers Utilisations At 31 March 2008

– (4,367) (1,391) – 218,628

PARENT

112

263 (263)

Revenue

1,365 (4,367) – (911)

At 1 April 2007 Surplus for the year Transfers Utilisations

– – – –

– – – –

6,001 (48) – –

6,001 (48) – –

At 31 March 2008

5,953

5,953

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

restated

Restricted reserves comprise: Donations Gift Aid East Potential

79 – 33

– – 22

– – –

– – –

112

22

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

restated

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

– – –

2,067 911 –

– – –

– – –

2,978

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.


East Thames Group Limited Financial Statements 47

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

24. Reserves, continued The surplus on ordinary activities this year of £3.0 million and the positive movement on reserves of £3.4 million were added to the reserves brought forward of £52.3 million resulting in £58.7 million being carried forward. Unlike commercial organisations the Group’s rules prevent the distribution of reserves. Instead these are applied to furthering our aims and objectives. At 31 March 2008 the Group’s reserves were all used in financing investments in social housing.

25. Financial commitments

Capital Commitments Expenditure contracted for but not provided in the accounts Expenditure authorised by the Board but not contracted for

Group 2008 £’000

Group 2007 £’000

101,609 34,442

167,920 39,495

136,051

207,415

This expenditure will be funded from loan facilities (52%), which are in place at the date of signing the accounts and from Social Housing Grant (48%).

26. Contingent liabilities The Group had no contingent liabilities at 31 March 2008 (2007: £ Nil).

27. Reconciliation of operating surplus to operating cashflows Group 2008 £’000 Operating surplus Depreciation of fixed assets Write off of abortive costs Sales allowances Net increase/(decrease) in provisions

5,998 2,431 401 (208) 1,844

Group 2007 £’000 8,129 2,246 877 (283) 42

Parent 2008 £’000 (48) 2,181 – – 334

Parent 2007 £’000 888 964 – – –

10,466

11,011

2,467

1,852

Movement in Working Capital Decrease in investments Decrease/(increase) in stock Decrease/(increase) in debtors Increase/(decrease) in creditors

– 895 (16,664) 7,064

– 6,410 3,223 (1,423)

– – 18,103 (16,372)

– – 27,370 (16,202)

Net cash inflow/(outflow) from operating activities

1,761

19,221

4,198

13,020


48 East Thames Group Limited Financial Statements

NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2008, continued

28. 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

Group 2008 £’000

Group 2007 £’000

Parent 2008 £’000

Parent 2007 £’000

(1,257)

3,001

262

2,132

(145,447) 189

(45,896) 1,020

– –

– –

Change in net debt resulting from cash flows Change in net debt resulting from non cash flows Change in net debt from acquisitions (excluding overdrafts) Net debt at the start of the period

(146,515) (88)

(41,875) (72)

262 –

2,132 –

(1,878) (287,673)

– (245,726)

– (1,144)

– (3,276)

Net debt at the end of the period

(436,154)

(287,673)

(882)

(1,144)

Other changes £’000

2008 £’000

29. Analysis of net debt

Group Cash at bank and in hand Bank overdraft

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

Parent Bank overdraft

2007 £’000

Acquisitions (excluding Cash flow overdraft) £’000 £’000

8,199 (1,144)

(1,519) 262

– –

– –

6,680 (882)

7,055

(1,257)

5,798

(5,050) (291,539) 1,861

1,890 (147,337) 189

(1,878) – –

– – (88)

(5,038) (438,876) 1,962

(287,673)

(146,515)

(1,878)

(88)

(436,154)

2007 £’000 (1,144)

Acquisitions (excluding Cash flow overdraft) £’000 £’000 262

Other changes £’000 –

2008 £’000 (882)


East Thames Group Limited Financial Statements

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

Our key aims We deliver on our mission by: 1 providing high quality homes and services that meet the needs of our customers; 2 ensuring that our customers can influence our services; 3 influencing local, regional and national thinking, policies and strategies; 4 developing well-informed, committed and enthusiastic staff; and 5 actively using our financial and organisational strength.

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 will be professional: • being straightforward in everything we do; • adopting a flexible approach to delivering services; • demonstrating a respectful approach to our customers; and • being open, reliable and consistent. We will be leaders: • empowering our staff to act responsibly; • showing creativity in service provision; • inspiring those who work with us; and • campaigning on key issues.


Registered Office: 29-35 West Ham Lane London E15 4PH Switchboard: 020 8522 2000 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 Published by East Thames Group Limited

Group Accounts 2008  

Financial statements for the year ended 31 March 2008

Read more
Read more
Similar to
Popular now
Just for you