Financial statements for the year ended 31 March 2012
Contents Board Members and professional advisors
3
Operating and financial review
5 - 11
Board report
13 - 15
Auditors’ report
17 - 18
Income and expenditure account
20
Statement of total recognised surpluses and deficits
20
Balance sheet
21
Cash flow statement
22
Notes to the cash flow statement
23
Notes to the financial statements
24 - 46
The artwork on the covers and included in this report is from a competition held as part of the ‘Our Newport’ project launched last year.The competition asked local people to create artwork which reprsented their view of their community.
2 Newport City Homes Housing Association Ltd
Board Members and professional advisors BOARD Tenant Board Members Christopher England (Chair) Cecelia Beal Nora Rogers Rhys Richards (appointed from 10 May 2011) Colin Symonds (resigned 26 September 2011) Council Board Members Sheila Davies Gill Ford Chris Freegard Angela Jones (resigned 3 October 2011) Independent Board Members Graham Briscoe John Harrhy Anthony Jones Jane Mudd David Taylor
Bankers Barclays Bank plc Windsor Court 3 Windsor Place Cardiff CF10 3ZL
External auditors Haines Watts Wales LLP Pagefield House 24 Gold Tops Newport NP20 4PG
Funders Royal Bank of Scotland plc Nationwide Building Society Barclays Bank plc
Internal Auditors RSM Tenon Ltd 33 - 35 Cathedral Road Cardiff CF11 9HB
Principal Solicitors Hugh James Hodge House 114 -116 St Mary Street Cardiff CF10 1DY Morgan Cole Bradley Court 11 Park Place Cardiff CF10 3DR
Secretary and registered office Lynda Clark Nexus House Mission Court Newport NP20 2DW Executive officers Peter Cahill Chief Executive Lynda Clark Director of Finance & IS and Company Secretary Nick Hampshire Director of Asset Management & Investment Robert Lynbeck Director of Housing and Regeneration Adela Rogers Director of Corporate Services
Newport City Homes Housing Association Ltd is a charitable housing association, registered with the Welsh Government (registration number L149) and the Registrar of Friendly Societies under charitable rules (registration number 30192R).
3 Newport City Homes Housing Association Ltd
Operating and financial review for the year ended 31 March 2012
4 Newport City Homes Housing Association Ltd
The Board is pleased to present its Operating and Financial Review, Board Report and the audited Financial Statements for Newport City Homes Housing Association Ltd (the Association) for the year ended 31 March 2012.
Nature, objectives and strategies Legal Status The Association is an Industrial and Provident Society with exempt charitable status rules. It is registered with the Welsh Government (WG) as a Registered Social Housing Provider (RSHP).
Principal activities and geographical coverage This review covers the year to 31 March 2012 and outlines plans and goals for the coming years. The Association is a not-for-profit organisation administered by a voluntary Board of Management. It provides management, maintenance and improvement services to 9,044 rented homes located within the administrative boundary of Newport City Council. The Association also provides management services to 646 leasehold flats, has a portfolio of 99 premises let on commercial terms, manages 1,717 garages and holds between 25% and 75% equity in 163 shared ownership properties on which it receives rental income.
Statement of Vision We have a passion for providing quality homes and services by investing in people, places and partnerships. To achieve this we recognise that we need to “pursue excellence and deliver opportunities for all to transform the quality of their homes, communities and lives. We wish to encourage residents to engage with us and create a confident, dynamic organisation that listens, learns and improves continuously.’ ’ The Association has completed its third year of operation since transfer. The core responsibilities of the Association continue to be focused on delivering the promises made to residents in the transfer Offer Document and to ensure all the homes that it owns and manages achieve the Welsh Housing Quality Standard (WHQS) by the end of 2015. The Association will ensure that people live in places that meet their needs and expectations by delivering that standard through effective partnership working. This core requirement and our commitment to service excellence have enabled us to identify our three strategic aims:
• deliver excellent services; • improve homes and neighbourhoods; and • add value to residents and the city. These aims reflect the Association’s obligation to provide a clear framework to deliver the high quality homes, services and neighbourhood regeneration that it is committed to achieving.
5 Newport City Homes Housing Association Ltd
Operating and financial review (continued) for the year ended 31 March 2012 Investment Works The Investment team and contractor framework have had another busy year investing ÂŁ32.2m in our properties and moving us closer towards WHQS compliance.
WHQS works completed
The table below summarises the number of completions previously, during this year and future plans;
2010/11 No.
2011/12 No.
Internals (Kitchens, Bathrooms & Electrics)
2,173
2,675
Heating system upgrades
3,017
1,449
Windows & doors
1,694
1,039
299
122
2012/13 No.
2013/14 No.
2,130
452
Heating system upgrades
670
532
Windows & doors
140
332
Cladding
128
-
Cladding WHQS programme for 2012/13 & 2013/14 Internals (Kitchens, Bathrooms & Electrics)
Tendering activities were started for external and environmental contractor frameworks to commence work in 2012/13. Tower block refurbishment tenders were also received this year in preparation for investment works to commence during 2012/13.
Property Services This year has seen the start of an extensive review of our reactive repairs process with the ultimate aim to ensure we deliver a service that “fixes the
6 Newport City Homes Housing Association Ltd
repair, first time, on time�. All property services will be reviewed in the same way to ensure we continuously improve the service we offer to residents. Significant effort has been made to improve the void turnaround time. Currently routine voids are averaging a turnaround time of 26 days. The lifecycle between painting intervals is being lowered each year and gas servicing compliance remains at over 99%.
Operating and financial review (continued) for the year ended 31 March 2012
Citywide Panel
Resident participation has continued to evolve during 2011/12. A revised strategy for participation was developed with staff and residents and submitted to the Welsh Government in October 2011. This strategy is based on a full evaluation of involvement, exploring what residents and the Association feel is working well to engage and inspire residents and what needs to improve to ensure residents are continually at the forefront of service reviews. A key aspect that features heavily in the menu of options for participation and involvement is support offered to ensure neighbourhoods are resourced and galvanised to work with the Association to become thriving areas led by the residents. The following figures demonstrate how involvement has changed during the last 12 months and how residents engage with the Association.
Special Interest Groups Area Panels
Challenge Panel
Projects
N’hood Groups
Training
Community Fund
Events
Y IT UN ENT MM PM CO ELO V DE
Moving into 2012/13 our Asset Management Strategy places emphasis on the areas known as ‘set aside’ areas. Future programme years will see a range of regeneration projects delivered to address both WHQS and the wider social, environmental, economic and physical improvements to key neighbourhoods.
Resident Participation
NT N NA TIO TE IPA IC RT PA
The “Handy Home Service” has been introduced alongside a drive to enhance the presence of our Estate teams across our key neighbourhoods.
Level of participation and involvement High 2010/11 2011/12 38 53
Medium 2010/11 2011/12 652 1,920
Low 2010/11 2011/12 2,987 4,418
Service Improvements The Association continues to develop and refine the way in which we provide services both through strong resident engagement and operational experience. During 2011/12 we have undertaken the following service developments;
• the remodelling of services at Aneurin Bevan
Court in order to manage the new legislation and regulatory framework. This has seen the provision of a new care provider, a new support team and the provision of new catering arrangements.
• delivering of a Common Housing Register,
ensuring a single access point for social housing in the City in partnership with the local authority and other housing associations.
7 Newport City Homes Housing Association Ltd
Operating and financial review (continued) for the year ended 31 March 2012
• streamlining the operation of the Resident
Services Centre for the management of repairs and general housing enquiries.
Neighbourhoods During 2011/12 we have continued to develop our agenda around Neighbourhoods and building communities where residents want to live, work and stay. Actions taken to promote this approach include:
• the development of a Telecare/Telehealth service to promote independent living.
• a tenant ‘Insight’ project, where we aim to find
out the full needs of residents who occupy our homes and tailor services accordingly.
• the provision of a Water Collect contract to
work with Welsh Water and our residents to ease the payment of water charges.
• the continued use of our Environment Fund
to promote environmental improvements in neighbourhoods.
Regeneration Throughout 2011/12 we invested considerable resources in our principle regeneration area of Pillgwenlly. The Association has worked with the local community to develop a short, medium and long term action plan to address the needs of the area. Work is now well underway in building the foundations for positive change and area renewal.
Future Financial Performance The financial plan for the period 2012-17 has been approved by the Board. The Association’s Financial Plan demonstrates the capacity to deliver the core offer document promises and additional benefits for local neighbourhoods and the economy of 8 Newport City Homes Housing Association Ltd
the City. This includes spending £140m on the maintenance and management of properties over the next five years. The key projections included in the Financial Plan are:
• income & expenditure account – turnover
is projected to rise from £37m in 2011/12 to £44.3m by 2016/17. Revenue deficits are projected to rise from 2014/15 to 2017/18, due to the level of expenditure on the investment programme;
• balance sheet - total housing assets are
projected to be £187m as at 31 March 2017. Net fixed assets amount to £111m at this date. These assets are funded by loans totalling £88m and grant totalling £52m;
• the cashflow forecast gives a more complete
picture of the financial position of the Association than the income and expenditure account. A large proportion of the Association’s expenditure is on the investment programme which is not reflected fully in the income and expenditure account. Total cash deficits over the five years to 2017 amount to £70m; and
• peak debt is projected to be £104m in 2019. The debt is fully repaid by 2034.
As a not-for-profit RSHP all resources are reinvested in improvements to homes, services and neighbourhoods for the benefit of residents.
Operating and financial review (continued) for the year ended 31 March 2012 Key Performance Indicators The Association has put in place a performance management framework that will capture the data required for all stakeholders. Key Performance Indicators 1.
Net rent arrears
2.
Average re-let time – routine voids
3.
Tenancy turnover rate
4.
Void & bad debt loss
5.
Repairs completed in target time: Emergency Urgent Non-urgent
Key Performance Indicators, as reported to the Welsh Government or internally, are set out in the following table:
2011/12 2011/12 target target
2011/12 outturn outturn
2.1%
2.06% 2.06%
2121 days days 9%
26 days 26.56 days 7.69% 7.69%
2.27% 2.27%
2.1% 2.1%
98% 95% 97%
92.1% 92.1% 93.5% 93.5% 94.5% 94.5%
6.
Gas servicing compliance
100% 100%
99.9% 99.9%
7.
WHQS investment
£33.2m £33.2m
£32.2m £32.2m
8.
Share membership (cumulative)
850
1,733 1,733
9.
Staffing: Sickness absence Turnover
4.5% 5%
5.19% 5.19% 5.4% 5.4%
Various... Various
Full Full compliance compliance
10.
Loan covenant compliance
11.
Average unit costs: Housing management Responsive repairs and voids maintenance Major repairs and cyclical maintenance
12.
Resident satisfaction: core services; Responsive repairs Gas servicing WHQS Programme
}
9 Newport City Homes Housing Association Ltd
£475 £475 £1,000 £1000
£451 £451 £923 £923
£2,800
£4,061 £4,061
86% 86%
94% 94% 97% 97% 92% 92%
Operating and financial review (continued) for the year ended 31 March 2012 Risk Management and Value for Money The Association faces a wide variety of businessrelated risks. In order to manage and mitigate these risks the Association has put in place a flexible risk management framework that takes into account its specific needs and current stage of development. The Board acknowledges its responsibility for the management of risk. The Board has delegated the task of monitoring risks to the Audit Committee. The Association will have three levels of risk management:
• business critical; • operational; and • project. Business critical risks are agreed by the Board and monitored by the Audit Committee on a regular basis. The business critical and operational risk registers are monitored by the Executive and Senior Management teams regularly. Registers will only include current issues and will not be a repository for all day to day issues that managers deal with regularly. The risk management framework will integrate with other strategies and management frameworks within the organisation. The project management framework will ensure that value for money is built into the decision making process and so, like risk, it becomes embedded and fundamental to any decisions taken by managers. The risk management process will also encourage managers to focus on value for money. The Audit Committee receives an annual value for money statement.
10 Newport City Homes Housing Association Ltd
Treasury Management The Association has a treasury operation within the Finance Department, whose primary function is to manage liquidity, funding, investment and financial risk, including those arising from volatility in interest rates and counterparty credit risk. The Association defines its treasury management activities as “The management of the organisation’s cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.” The Association regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the Association. The Association acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. It is therefore committed to the principles of achieving best value in treasury management, and to employing suitable performance measurement techniques, within the context of effective risk management.
Operating and financial review (continued) for the year ended 31 March 2012 Liquidity and Balance Sheet Debt
Going Concern
The Association will ensure it has adequate, though not excessive, cash resources, borrowing arrangements and overdraft or standby facilities to enable it at all times to have the level of funds available which are necessary for the achievement of its business/service objectives. At the time of transfer in March 2009, a loan facility of £112.5m was agreed with a syndicate comprising, Royal Bank of Scotland plc, Barclays Bank plc and Nationwide Building Society secured on the housing stock. The loan agreement contains two separate facilities:
After making enquiries, the Board of Management has a reasonable expectation that it has adequate resources to continue in operational existence for the foreseeable future. For this reason the going concern basis has been adopted in these financial statements.
• a £7.5m revolving loan facility which can
be drawn and repaid and redrawn as the Association’s financial requirements fluctuate; and
• a £105m long term facility which must be fully repaid by the 30th anniversary of the loan agreement.
As at 31 March 2012 the Association had undrawn loan facilities totalling £91.5m. The loan facility includes four equal forward rate fixes totalling £84m commencing from 1 April 2011. Each tranche is fixed for a period of 25 years.
Key Accounting Policies The principal accounting policies are set out in Note 1 to the financial statements on pages 24 to 26. The most critical accounting policies in terms of the impact of the financial statements are the calculation of depreciation on housing properties and the capitalisation of the investment in housing properties. These two accounting policies have remained unchanged from the previous year.
11 Newport City Homes Housing Association Ltd
Statement of Compliance As it is considered to be best practice for Registered Social Housing Providers with more than 5,000 units in management at the balance sheet date to publish an operating and financial review, the Association has adopted the Accounting Standards Board Reporting Standard 1: Operating and Financial Review in full.
Board report for the year ended 31 March 2012
12 Newport City Homes Housing Association Ltd
The Board presents its report and the audited financial statements for the year ended 31 March 2012.
Principal Activities The principal activity of the Association is the provision of affordable housing and related regeneration activities supporting local neighbourhoods within the City of Newport. The Association is exempt from Corporation Tax on its Charitable activities.
Performance for the Year The Board reports a surplus of £5.9m. The surplus does not include capital expenditure of £28.3m. During the year the Association spent £45.1m on reactive, cyclical and planned repairs, adaptations and improvements to housing properties. The balance sheet shows housing assets of £60.6m and capital grants received of £20.2m. Net current liabilities as at 31 March 2012 were £2.0m. There were loans of £21m outstanding at 31 March 2012. The cashflow statement shows an increase in cash of £0.4m.
Board and Senior Executives Membership of the Board and the Executive Team is set out on page 3. All of the Board Members hold share capital in the Association with Newport City Council being issued with one share. The senior executives of the Association will not hold share capital in the Association and although not having the legal status of directors, they act as executives within the authority delegated to them by the Board.
13 Newport City Homes Housing Association Ltd
Board and Governance Structure The Board currently comprises up to 15 nonexecutive members and is responsible for strategic direction and monitoring the activities of the Association. The Board comprises five tenants, five independents and five nominees from Newport City Council. At a Special General Meeting on 30th March 2012 a resolution was passed to change the composition of the Board to up to seven tenants, five independants and four nominees from Newport City Council. Board Members are drawn from a wide background bringing together a professional, commercial, local and resident focus. The Association complies with the Code of Governance of Community Housing Cymru. The Board is responsible for the Association’s strategy and policy framework. It delegates dayto-day management and implementation of that framework to the Chief Executive and other senior executives who meet regularly and attend Board meetings.
Committees The Board has two Committees, Audit and Remuneration and has four Sub-Committees, Finance & Information Services, Corporate Services, Housing & Regeneration and Asset Management & Investment. The Audit Committee meets four times a year. It considers the appointment of internal and external auditors, the scope of their work and reports. The Remuneration Committee comprises the Chair and up to four members of the Board. The Committee advises the Board on the remuneration and terms and conditions of service for senior staff.
Board report (continued) for the year ended 31 March 2012 The Sub-Committees oversee the operations of the relevant departments and have no delegated powers but make proposals and recommendations to the Board.
Responsibilities of the Board The Board is responsible for preparing the financial statements in accordance with applicable law and regulations. Industrial and Provident Society law requires the Board to prepare financial statements for each financial year. Under those regulations the Board has elected to prepare the financial statements in accordance with UK Accounting Standards. The financial statements are required by law to give a true and fair view of the state of affairs of the Association and of the surplus or deficit for that period. In preparing these financial statements, the Board is required to;
• select suitable accounting policies and then ensure that they are applied consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting
Standards and the Statement of Recommended Practice (SORP) have been followed, subject to any material departures disclosed and explained in these financial statements; and
• ensure that the financial statements are
prepared on the going concern basis unless it is inappropriate to presume that the Association will continue to operate.
The Board is responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Association and enable it to ensure that its financial statements comply with the Industrial and Provident Societies Act 1965 to 2002, the Housing Act 1996 and the Accounting Requirements for Social Landlords Registered in Wales: General Determination 2009. The Board is also responsible for ensuring that the assets of the Association are safeguarded and to prevent and detect fraud and other irregularities. The Board has a current policy on the prevention, detection and reporting of fraud and has reviewed the current register of fraud.
Internal Control The Board acknowledges its ultimate responsibility for ensuring that the Association has in place a system of controls that is appropriate for the various business environments in which it operates. These controls are designed to give reasonable assurance with respect to:
• the reliability of financial information used by the Association or for publication;
• the maintenance of proper accounting records; and
• the safeguarding of assets against unauthorised use or disposition.
It is the Board’s responsibility to establish and maintain systems for internal financial control. Such systems only provide reasonable but not absolute assurance against material misstatement or loss. Key elements include ensuring that:
• experienced and suitably qualified staff take
responsibility for important business functions;
14 Newport City Homes Housing Association Ltd
Board report (continued) for the year ended 31 March 2012
• formal policies and procedures are in place,
including the documentation of key systems and rules relating to the delegation of authorities, which allow the monitoring of controls and restricts the unauthorised use of the Association’s assets;
•
all significant new initiatives, major commitments and investment projects are subject to formal authorisation procedures; and
• the Audit Committee reviews reports from
management and the internal and external auditors to provide reasonable assurance that control procedures are in place and are being followed.
• This includes a general review of the major
risks facing the Association not otherwise dealt with directly by the Board. Formal procedures have been established for instituting appropriate action to correct material weaknesses identified from the above reports. The Audit Committee makes regular reports to the Board.
•
The Audit Committee reviews the Business Critical Risk Register regularly and highlights any issues arising to the Board.
Employees The strength of the Association relies on the commitment from its staff. The Association’s ability to meet its key objectives and commitments to the residents of Newport depends on the contribution of employees throughout the Association. The Association continues to provide information on its objectives and transfer progress through regular staff meetings.
15 Newport City Homes Housing Association Ltd
The Association is committed to equal opportunities for all its employees and, in particular, supports the employment of disabled people, both in recruitment and in the retention of employees who become disabled while in employment.
Disclosure of Information to Auditors The Board Members who held office at the date of approval of this Board report confirm that, so far as they are each aware, there is no relevant audit information of which the Association’s auditors are unaware, and each Board Member has taken all the steps that they ought to have taken as a Board Member to make themselves aware of any relevant audit information and to establish that the Association’s auditors are aware of that information. A resolution to appoint the Association’s External Auditors will be proposed at the Annual General Meeting on 27 July 2012. Approved by the Board and signed on its behalf by:
Chris England Chair of the Board 10 July 2012
Auditors’ report for the year ended 31 March 2012
16 Newport City Homes Housing Association Ltd
We have audited the financial statements of Newport City Homes (‘the Association’) for the year ended 31 March 2012 which comprise the Income and Expenditure Account, Balance Sheet, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Association’s members, as a body corporate, in accordance with the requirements of the Industrial and Provident Societies Acts 1965 to 2002, schedule 1 to the Housing Act 1996 and the Accounting Requirements for Social Landlords Registered in Wales - General Determination 2009. Our audit work has been undertaken so that we might state to the Association’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Association and the Association’s members as a body, for our audit work, for this report, or for the opinions we have formed.
17 Newport City Homes Housing Association Ltd
Respective responsibilities of the Board and the auditor As explained more fully in the Statement of Board’s responsibilities, set out on pages 14 to 15, the Board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practice Board’s Ethical standards for Auditors. We review whether the Board’s statement on internal financial control reflects the Association’s compliance with the Housing for Wales Circular HFW 02/10 “Internal controls and reporting” and we report whether the statement is not inconsistent with the information of which we are aware from our audit of the financial statements. We are not required to form an opinion on the effectiveness of the Association’s corporate governance procedures or its internal financial control.
Auditors’ report (continued) for the year ended 31 March 2012 Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Association’s circumstances and have been consistently applied and adequate disclosed; the reasonableness of significant accounting estimates made by the Board; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Board report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on Internal Control
• have been properly prepared in accordance
with the Industrial and Provident Societies Acts 1965 to 2002, schedule 1 to the Housing Act 1996 and the Accounting Requirements for Social Landlords Registered in Wales - General Determination 2009;
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts 1965 to 2002 require us to report to you if, in our opinion:
• a satisfactory system of control over
transactions has not been maintained; or
• the Association has not kept proper accounting records; or
• the financial statements are not in agreement with the books of account; or
• we have not received all the information and explanations we need for our audit.
In our opinion, with respect to the Board’s statement on internal financial control:
• the Board has provided the disclosures
Opinion on financial statements
Haines Watts Wales LLP Statutory Auditor Pagefield House 24 Gold Tops Newport NP20 4PG
In our opinion the financial statements:
10 July 2012
required by the Circular and the statement is not inconsistent with the information of which we are aware from our audit work on the financial statements.
• give a true and fair view of the state of the
Association’s affairs as at 31 March 2012 and of its income and expenditure for the year then ended;
18 Newport City Homes Housing Association Ltd
Income and expenditure account Balance sheet Cash flow statement Notes to the financial statements
Income and expenditure account for the year ended 31 March 2012 Notes
2012 £’000
2011 £’000
Turnover
2
36,967
35,680
Operating costs
2
(29,968)
(27,179)
6,999
8,501
945
1,257
Operating surplus Surplus on sale of fixed assets
5
72
Interest receivable Interest payable and similar charges
10
Exceptional Income
23
10
(2,142)
-
(1,103)
1,188
Surplus on ordinary activities before taxation
5,874
9,853
Taxation
-
-
Surplus for the year after tax
5,874
9,853
(6,011)
(8,375)
(137)
1,478
General reserve brought forward
2,609
1,131
General reserve carried forward
2,472
2,609
Transfer to reserves
20
The Association’s income and expenditure relate to continuing operations. There is no difference between the historic cost results and those shown on the income and expenditure account above.
Statement of recognised surpluses and deficits for the year ended 31 March 2012
2012 £’000
Surplus for the year before transfers to reserves
5,874
Actuarial (loss)
Total recognised surplus for the year
20 Newport City Homes Housing Association Ltd
(1,365) 4,509
2011 £’000 9,853 (3,070) 6,783
Balance sheet as at 31 March 2012 Notes
2012 £’000
2011 £’000
Housing properties
11
60,564
34,448
Capital grants
12
(20,167)
(13,440)
40,397
21,008
Tangible fixed assets
Other property
13
-
-
Other fixed assets
14
2,991
3,289
43,388
24,297
Current assets Stock
15
53
49
Debtors
16
5,832
6,543
1,652
1,243
7,537
7,835
17
(9,488) (1,951)
(10,128) (2,293)
25
-
241
41,437
22,245 (7,500)
Cash at bank and in hand Creditors: amounts falling due within one year Net current liabilities LGPS pension asset Total assets less current assets Creditors: amounts falling due after more than one year
18
(21,000)
LGPS pension liability
25
(1,181)
-
19,256
14,745
Capital and reserves Share capital
19
2
-
General reserves
20
2,472
2,609
Designated and other reserves
20
16,782
12,136
19,256
14,745
The financial statements were approved by the Board of Management on 10 July 2012 and signed on its behalf by:
C England, Chair
D Taylor,Vice Chair
21 Newport City Homes Housing Association Ltd
L Clark, Secretary
Cash flow statement for the year ended 31 March 2012 Notes Net cash flow from operating activities
(a)
2012 £’000
2011 £’000
10,413
8,777
71
10
Returns on investment and servicing of finance Interest received Interest paid
(2,148)
(1,090)
(2,077)
(1,080)
(28,703)
(24,571)
6,727
6,742
Capital Expenditure Purchase and construction of housing & other properties Capital grants received
(397)
Purchase of other fixed assets
949
Sale of housing properties & land
(3)
Sale of other fixed assets
(731) 1,246 44
(21,427)
(17,270)
13,500
7,500
-
-
(b)
13,500
7,500
(c)
409
Financing Housing loans received Housing loans repaid Increase/(Decrease) in cash
22 Newport City Homes Housing Association Ltd
(2,073)
Notes to the cash flow statement for the year ended 31 March 2012
2012 £’000
2011 £’000
a. Reconciliation of operating surplus to net cash inflow from operating activities Operating surplus
6,999
8,501
Depreciation of tangible fixed assets
2,802
1,760
154
69
Prepaid loan fees LGPS - movement between current and past service cost and contributions paid
57 10,012
(32) 10,298
Working Capital Movements (4)
(Increase) in stock
451
Decrease/(increase) in operating debtors
(188)
(Decrease) in operating creditors Loss on disposal Increase in provisions Net cash flow from operating activities
(14) (1,487) (150)
36
21
106
109
10,413
8,777
b. Reconciliation of net cash inflow to movement in net debt 409
Increase/(decrease) in cash
(2,073)
(Increase) in loans
(13,500)
(7,500)
(Increase) in net debt
(13,091)
(9,573)
(6,257)
Net debt at 1 April 2011 Net debt at 31 March 2012 Cash at bank and in hand £’000
3,316
(19,348)
(6,257)
Loans due in more than one year £’000
Changes in net debt £’000
c. Analysis of net debt As 1 April 2011
1,243
(7,500)
(6,257)
Net cash flows
409
(13,500)
(13,091)
1,652
(21,000)
(19,348)
As 31 March 2012
23 Newport City Homes Housing Association Ltd
Notes to the financial statements for the year ended 31 March 2012 1. PRINCIPAL ACCOUNTING POLICIES A summary of the more important accounting policies, which have been applied consistently, are set out below:
Basis of accounting The financial statements are prepared on the historical cost basis of accounting in accordance with applicable financial reporting standards in the United Kingdom, including the Statement of Recommended Practice (SORP) for “Accounting by Registered Social Landlords” as updated in 2010, and comply with the Accounting Requirements for Social Landlords registered in Wales General Determination 2009.
Turnover Turnover comprises:
• rent and service charges receivable net of empty property voids;
• fees; and • revenue grants. Housing properties In March 2009 all housing properties transferred at no cost from Newport City Council and were also subject to a nil valuation based on an independent report using the basis of existing use value for social housing. Investment works in the housing property stock that have been capitalised are valued at cost less depreciation. “Housing properties in the course of construction” are stated at cost and transferred into “housing properties” when completed.
24 Newport City Homes Housing Association Ltd
Any overhead costs directly attributable to bringing fixed assets into their working condition for their intended purpose are capitalised. Expenditure on initial purchase of land and buildings is capitalised and disclosed as part of housing properties in course of construction within tangible fixed assets. Any directly attributable finance costs (other than interest costs) are capitalised as the asset is developed and amortised over the life of that asset. The Association does capitalise interest on loans raised to finance schemes prior to completion. Some residents have rights under their tenancy agreement to purchase their homes at prices which are at a discount below the open market price. Surpluses or deficits on disposals of properties are recognised as at the date a sale becomes certain. The surplus or deficit arising on a disposal of a property is the difference between the sale price and the aggregate of the depreciated cost and any associated costs of disposal such as valuation and Legal fees. Any grant originally received on a property is repayable in full in the case of a disposal, demolition or change of use to an ineligible activity, save that in circumstances where the Welsh Government considers appropriate it may reduce the amount repayable. Where this arises on a disposal, the grant repayable so waived is added back to the surplus or deficit on that disposal.
Interest payable Interest payable is charged to the income and expenditure account to reflect the costs of loan finance attributable to each accounting period.
Notes to the financial statements (continued) for the year ended 31 March 2012 Depreciation The Association depreciates its housing properties in accordance with the Statement of Recommended Practice (SORP) “Accounting by Registered Social Landlords�. Depreciation is charged on the historic cost of property (excluding land) after deducting grants and an amount for residual value. The depreciable amount is written off over the estimated useful lives as follows: Houses
Flats
New build properties
150 years
110 years
Acquisition / refurbishments
100 years
80 years
Properties on long leases are depreciated over the shorter of the above and/or the remaining period of the lease. The policy in respect of expenditure to refurbish or replace major components is that all such work is assessed against life cycle costing principles. Any cost in respect of repairs with a life of less than 10 years is charged directly to the income and expenditure account. Refurbishment or replacement of major components which have an estimated useful life in excess of 10 years are capitalised and depreciated over the useful life of the component as follows: Windows and doors
30 years
Kitchens
15 years
Bathrooms
25 years
Central heating
15-30 years
Roofing
15-55 years
Depreciation is charged over the expected useful economic life of other fixed assets as follows: Office refurbishment
15 years
Office & I.T. equipment
4 to 10 years
Vehicles and equipment
5 to 10 years
Capital Grants The Association received financial assistance from the Welsh Government to support the delivery of the business plan and the achievement of the Welsh Housing Quality Standard. Financial assistance of ÂŁ6.5m per year has been offered until 2013 and further financial assistance is intended to be offered until 2039. The amount of further financial assistance will depend upon satisfactory progress being made and compliance with the terms and conditions established by the Welsh Government.
Supporting People Supporting People income and expenditure is accounted for on an accruals basis, matching income and expenditure and disclosures are made in accordance with relevant standards and legislation.
Impairment Housing properties are annually reviewed for impairment. Where there is evidence of impairment, housing properties are written down to their recoverable amount. The review undertaken during the year has indicated that no impairment has occurred.
Repairs and maintenance The costs of repairs and maintenance are expensed as incurred on the basis of work done at the balance sheet date.
25 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 Operating leases Costs in respect of operating leases are charged to the income and expenditure account as they are incurred.
Stock Stock is valued at the lower of cost or net realisable value.
Right to Buy sales Surpluses arising from sales of properties under the Right to Buy legislation are disclosed on the face of the income and expenditure account. Surpluses arising from property sales are transferred to the Major Repairs Designated Reserve to help fund the investment programme to bring properties up to the Welsh Housing Quality Standard.
Value Added Tax The Association is partially exempt for VAT purposes and claims are made for repayment of VAT for items that are specifically allowable. Expenditure is shown inclusive of nonrecoverable VAT.
Provisions Provisions are recognised where uncertainty exists regarding the timing or amount that may be required to settle potential liabilities. Any amounts provided are charged to the income and expenditure account and credited to the balance sheet based upon the Association’s best estimate of potential liabilities.
Pension costs The Association participates in two pension schemes:
• The Social Housing Pension Scheme (SHPS) is a defined benefit scheme managed by
26 Newport City Homes Housing Association Ltd
the Pensions Trust. Contributions are based on pension costs across the various participating Associations taken as a whole and assets of the scheme are invested and managed independently of the finances of the Association. It is not possible to identify the share of underlying assets and liabilities belonging to the individual participating employers, therefore in accordance with Financial Reporting Standard No. 17 – Retirement Benefits (FRS17) contributions payable to the Association’s pension scheme are charged to the income and expenditure account as they become payable in accordance with the rules of the scheme.
• The Local Government Pension Scheme
(LGPS), a defined benefit scheme managed by Torfaen County Borough Council (Greater Gwent). Contributions are assessed in accordance with the advice of an independent qualified actuary. Certain information concerning the assets, liabilities, income and expenditure relating to the LGPS scheme are disclosed in accordance with Financial Reporting Standard No. 17 – Retirement Benefits (FRS17).
Designated reserve The Board will determine, on an annual basis, the amount of surplus that will be set aside for a Major Repairs designated reserve. This is to ensure that any difference between the estimated costs at transfer of the average costs of improvements and actual costs is addressed, such that promises to the residents via the Offer Document/Transfer Agreement and the Welsh Housing Quality Standard can be delivered.
Notes to the financial statements (continued) for the year ended 31 March 2012 2.
Turnover, operating costs and surplus Year ended 31 March 2012 Year ended 31 March 2011 Turnover Operating Operating Turnover Operating Operating Costs Surplus Costs Surplus £’000 £’000 £’000 £’000 £’000 £’000 Income and expenditure from lettings General needs housing
35,025
28,509
6,516
33,776
25,853
7,923
Fully rented housing accommodation 35,025
28,509
6,516
33,776
25,853
7,923
Garages Other activities Total
348
191
157
379
202
177
1,594
1,268
326
1,525
1,124
401
36,967
29,968
6,999
35,680
27,179
8,501
27 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 3. Turnover from lettings 2012
2011
£’000
£’000
32,729
30,985
1,973
2,298
34,702
33,283
323
493
35,025
33,776
2012
2011
£’000
£’000
Management costs
5,729
5,459
Service charge costs
3,636
3,619
Planned maintenance
7,066
5,996
Day to day maintenance
9,799
9,510
Depreciation of housing properties
2,115
1,135
28,345
25,719
164
134
28,509
25,853
General needs housing Rents receivable (net ) Service charges receivable Supporting People Grant
4. Operating costs from lettings General needs housing
Rent losses from bad debts Operating surplus on social housing lettings Rent loss due to voids (memorandum note)
5. Surplus on sale of fixed assets Sale proceeds Cost of sales Surplus on disposal
6,516 (420)
7,923 (585)
2012
2011
£’000
£’000
985 (40) 945
1,322 (65) 1,257
During the year the Association sold 11 properties under Right to Buy, 4 Shared Ownership staircased to 100%, 6 land sales and 1 vehicle.
28 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 6.
Operating surplus for the period 2012
2011
£’000
£’000
2,802
1,760
Rent losses from bad debts
164
134
Operating leases
744
683
11
19
2012
2011
£’000
£’000
Emoluments (including pension contributions and benefits in kind)
509
517
Emoluments (excluding pension contributions) paid to the highest paid senior executive
121
121
Operating surplus for the period is stated after charging: Depreciation
Auditor's remuneration (inclusive of VAT): in their capacity as auditors 7. Board Members and senior executives emoluments The remuneration paid to the senior executives of the Association was:
No remuneration was paid to the members of the Board of Management during the year. The Chief Executive is an ordinary member of the SHPS pension scheme and no enhanced or special terms apply. The Association’s contribution in respect of the Chief Executive’s pension fund amounted to £10,047 (2011 - £11,880). Newport City Homes does not make any further contribution to any individual pension arrangement for the Chief Executive. The emoluments paid to the Chief Executive include a 10% car allowance.
29 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 8.
2012
2011
£’000
£’000
7,872
7,900
Social security costs
605
603
Other pension costs
745
717
9,222
9,220
2012
2011
No.
No.
213
210
Wardens, caretakers and cleaners
35
38
Housing repair service
78
75
326
323
Employee and employer costs Staff costs during the year: Wages and salaries
Average number of full time equivalent employees during the year: Management and administration
9.
Interests and related party transactions During the year the Association provided rented accommodation to four Board Members who were tenants of the Association, and charged rent to those members on the Association’s standard terms. Tenant Board Members are unable to use their position to their advantage. Where Board Members are Councillors, any transaction with those local authorities are at an arms length basis and as such Board Members are unable to use their position to their advantage.
10.
Interest payable and similar charges
Interest payable and similar charges
30 Newport City Homes Housing Association Ltd
2012
2011
£’000
£’000
2,142
1,103
2,142
1,103
Notes to the financial statements (continued) for the year ended 31 March 2012 11. Tangible fixed assets - housing properties Housing Freehold Housing properties in properties held for the course of letting construction £’000 £’000
2012 Total £’000
Cost At 1 April 2011
35,628
-
35,628
Additions during the year
28,258
-
28,258
Disposals during the year
(28)
-
(28)
63,858
-
63,858
At 1 April 2011
1,180
-
1,180
Charge for the year
2,115
-
2,115
At 31 March 2012 Depreciation
Disposals during the year
(1)
-
(1)
3,294
-
3,294
At 31 March 2012
60,564
-
60,564
At 1 April 2011
34,448
-
34,448
At 31 March 2012 Net book value
Major repairs and investment in existing properties to let during the year amounted to £33.35m (including capitalised salaries of £1.15m). This has been accounted for as follows:
Planned maintenance (revenue) Investment (capital)
31 Newport City Homes Housing Association Ltd
2012
2011
Total
Total
£’000
£’000
5,096
4,508
28,258
25,673
Notes to the financial statements (continued) for the year ended 31 March 2012 11. Tangible fixed assets - housing properties (continued) 2012
2011
No.
No.
9,044
9,083
Shared ownership
163
167
Leasehold management services
646
646
1,717
1,731
11,570
11,627
Units in Management: General needs housing properties in management
Garages
12. Tangible fixed assets - Capital grants Housing Housing properties in properties held the course of for letting construction £’000 £’000 At 1 April 2011
2012 Total £’000
13,440
-
13,440
6,500
-
6,500
227
-
227
-
-
-
20,167
-
20,167
Additions during the year: Dowry Other capital grants Disposals during the year At 31 March 2012
32 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 13.
Other property Other property consists of 99 (99 - 2011) commercial properties in Newport. 2012
2011
£’000
£’000
At 1 April 2011
-
-
Additions during the year
-
-
Disposals during the year
-
-
At 31 March 2012
-
-
At 1 April 2011
-
-
Additions during the year
-
-
Disposals during the year
-
-
At 31 March 2012
-
-
At 31 March 2012
-
-
At 1 April 2011
-
-
Cost
Depreciation
Net book value
The office premises at Malpas transferred from Newport City Council in March 2009 at nil value. The Association partially lets the offices to contractors on an arms length basis.
33 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 14.
Tangible fixed assets - other Office premises £’000
Scheme equipment £’000
Vehicles & office equipment £’000
2012 Total £’000
Cost At 1 April 2011
1,307
82
2,770
4,159
Additions during the year
-
20
377
397
Disposals during the year
-
-
(20)
(20)
1,307
102
3,127
4,536
114
8
748
870
Additions during the year
87
10
590
687
Disposals during the year
-
-
(12)
(12)
201
18
1,326
1,545
At 31 March 2012
1,106
84
1,801
2,991
At 1 April 2011
1,193
74
2,022
3,289
2012
2011
£’000
£’000
53
49
53
49
At 31 March 2012 Depreciation At 1 April 2011
At 31 March 2012 Net book value
15.
Stock
Stocks of materials
34 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 16. Debtors: amounts falling due within one year:
Arrears of rent and service charges Less: provision for bad and doubtful debts
Staff car loans Prepaid loan monitoring fees Debtors and prepayments
2012
2011
£’000
£’000
2,978
2,552 (593)
(699) 2,279
1,959
2
4
68
86
2,057
2,932
4,406
4,981
1,426
1,562
5,832
6,543
Debtors: falling due after more than one year: Prepaid loan facility fees
Staff car loans at 31 March 2012 consists of a loan to 1 employee. Loans are payable over periods of between one and five years with interest charged at 8.6%. 17.
Creditors: amounts falling due within one year 2012
2011
£’000
£’000
Maintenance and other supplies
2,584
2,414
Accruals and deferred income
1,071
1,365
696
540
5,137
5,582
-
227
9,488
10,128
Prepayments of rents and service charges Capital creditors Grants in advance
35 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 18. Creditors: amounts falling due after more than one year Housing loans
2012 £’000
2011 £’000
21,000
7,500
21,000
7,500
21,000
7,500
-
-
21,000
7,500
-
-
21,000
7,500
Loans repayable by instalments fall due as follows: • In five years or more • Between two and five years • In one year or less
At 31 March 2012, the Association had un-drawn loan facilities of £91.5m. Loans are secured on all properties where the Association holds an interest. Loan interest payable varies between 5.8039% and 5.8481%. 19. Non-equity share capital Shares of £1 issued: At 1 April 2011 Issued during the year Cancelled during the year At 31 March 2012
2012 £’000
2011 £’000
359
81
1,417
286
(43) 1,733
(8) 359
The shares provide members with the right to vote at general meetings. The shares carry no right to a dividend, there is no provision for the redemption of shares and there is no provision for a distribution following a winding up.
36 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 20. Reserves Designated Reserves Duffryn district heating Major Pension system repairs reserves £’000 £’000 £’000
Total £’000
General reserve £’000
2012 Total £’000
At 1 April 2011
293
11,602
241
12,136
2,609
14,745
Surplus for year
-
-
-
-
5,874
5,874
Actuarial (loss) for the year
-
-
(1,365)
(1,365)
-
(1,365)
Transfers from revenue reserves
-
4,887
1,124
6,011
Prior year transfer adjustment
At 31 March 2012
-
293
16,489
-
-
16,782
(6,011) -
2,472
-
19,254
The Duffryn district heating system designated reserve transferred from Newport City Council and recognises some of the future maintenance requirements for the heating system.
37 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 21. Operating leases At 31 March 2012 the Association had annual commitments under operating leases as follows: 2012 £’000
2011 £’000
280
-
63
278
343
278
Within one year
-
-
Between two and five years
-
-
437
399
437
399
Motor vehicle and office equipment expiring: Within one year Between two and five years
Land and buildings expiring:
Over five years
The Association signed a fifteen year lease terms on office accommodation at Nexus House, Mission Court, Newport. The terms of the lease are subject to review after five years, with the first review due on the fifth anniversary of the commencement date of the lease 12th March 2009. 22. Capital commitments
Capital expenditure contracted but not provided for in the financial statements Capital expenditure authorised by the Board but not contracted
2012 £’000
2011 £’000
8,779
81,662
22,675
16,278
These capital commitments are to meet Welsh Housing Quality Standards and will be funded by existing loan facilities as detailed in Note 18, and capital grants from the Welsh Government.
38 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012 23. Exceptional income In the UK budget statement on 22 June 2010 the Chancellor announced that with effect from 1 April 2011 public service pensions would be up-rated in line with the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). At 31 March 2011 this had the effect of reducing Newport City Homes Limited liabilities in the Greater Gwent (Torfaen) pension fund by £1,188m and was recognised as a past service gain in accordance with guidance set down in UITF 48, since the change was considered to be a change in benefit entitlement. There was no impact upon the general fund.
24. Net assets The balance sheet of the Association is reporting net assets of £19.3m as at 31 March 2012, compared to net assets of £14.7m at the end of the previous financial year. The £4.5m movement in the net assets position is due to a surplus of £5.8m on ordinary activities, less a LGPS pension liability of £1.2m. The main reasons for the surplus are; turnover was higher than expected and the sale of fixed assets continued to generate surpluses. Operating costs were lower particularly in the areas of staffing, maintenance and depreciation of housing properties.
39 Newport City Homes Housing Association Ltd
It is anticipated that in future years the Association will have large deficits, reflecting its Business Plan, until the WHQS works have been completed. The Welsh Government has undertaken to pay a dowry to the Association in acknowledgement of the level of work required. This dowry is payable in annual instalments phased to reflect the Association’s long term financial plan. The Board is satisfied that the availability of future loan finance and the dowry payment to be paid by the Welsh Government are sufficient to ensure that the Association will be able to meet its future liabilities as they fall due.
25. Pension costs The Association participates in the Social Housing Pension Scheme (SHPS) and the Torfaen County Borough Council (Greater Gwent) pension scheme (LGPS). Further information on each scheme is given below:
LGPS The Association participates in the Torfaen County Borough Council (Greater Gwent) pension scheme which is a defined benefit scheme based on final pensionable salary. Certain employees of the Association participated in the scheme prior to the stock transfer taking place and, as such, assets or liabilities attributable to these individuals were identified at the transfer date i.e. 9th March 2009. As part of the transfer agreement, liability for the proportion of the debt attributable to these employees that relates to the pre- transfer period rests with Newport City Council. The gains and losses recognised by the Association therefore relate solely to the period since transfer.
Notes to the financial statements (continued) for the year ended 31 March 2012 The most recent valuation was carried out at the 31 March 2011 and has been updated by independent actuaries to the scheme to take into account the requirements of FRS17 in order to assess the liabilities of the fund at 31 March 2012. Liabilities are valued on an actuarial basis using the projected unit method, which assesses the
Discount rate Rate of increase in salaries Rate of increase in pensions Rate of RPI inflation Rate of CPI inflation
Expected rates of return on: - Equities - Government Bonds - Other bonds - Property - Cash/liquidity - Other Expenses deduction
Market value Equities Government Bonds Other bonds Property Cash/liquidity Other
40 Newport City Homes Housing Association Ltd
future liabilities discounted to their present value. The Association’s contribution rate from 1 April 2011 to 31 March 2012 was 11.2% of members’ contributions. The principal assumptions used by the independent qualified actuaries in updating the latest valuations of the fund for FRS17 purposes were: 2012 %pa
2011 %pa
5.1% 4.1% 2.6% n/a 2.6%
5.5% 4.5% 3.0% 3.5% 3.0%
2012 %pa
2011 %pa
7.0% 3.1% 4.1% 6.0% 0.5% 7.0% 0.3%
7.5% 4.4% 5.1% 6.5% 0.5% 7.5% 0.3%
2012 %pa
2011 %pa
16,180 1,990 1,763 487 354 783 21,557
16,805 1,575 1,513 435 373 21 20,722
Notes to the financial statements (continued) for the year ended 31 March 2012 The movement in the net surplus for the period to 31 March 2012 is as follows:
2012 £’000
2011 £’000
Fair value of plan assets
21,557
20,722
Value of funded obligations
(22,738)
(20,481)
Value of unfunded obligations
-
-
Total estimated scheme (deficit)/surplus
(1,181)
241
2012 £’000
2011 £’000
Current service cost
892
954
Interest on pension liabilities
1,156
1,140
Expected return on assets
(1,402)
(1,456)
Past service cost (gain)
-
(1,188)
Effect of curtailments or settlements
21
22
Total pension cost recognised in income and expenditure account
667
(528)
2012 £’000
Reconciliation of funded status to balance sheet
Components of pension costs for year:
2011 £’000
Statement of recognised surpluses and deficits Actuarial (gains)/losses
1,365
3,070
Total pension cost recognised in the statement of recognised surpluses and deficits
1,365
3,070
41 Newport City Homes Housing Association Ltd
Notes to the financial statements (continued) for the year ended 31 March 2012
2012 £’000
2011 £’000
Present value of scheme assets at 31 March 2011
20,722
21,748
Expected return on assets
1,402
1,456
Business combinations
-
-
Actuarial losses on assets
(1,365)
Contributions by the employer
610
692
Contributions by the participants
340
326
Benefits and transfers paid
(152)
(600)
Total fair value of plan assets
21,557
20,722
2012 £’000
2011 £’000
Changes to the fair value of assets during the year:
Changes to present value of liabilities during the year:
(2,900)
Present value of scheme liabilities at 31 March 2011
20,481
19,657
Current service cost
892
954
Interest cost
1,156
1,140
Contributions by the participants
340
326
Past service cost (gain)
-
Actuarial (gains)/losses on liabilities
-
170
Curtailments
21
22
Benefits and transfers paid
(152)
Business combinations
-
-
Total value of funded obligations
22,738
20,481
2012 £’000
2011 £’000
Actual return on plan assets Experience gains/(losses) on assets Experience gains/(losses) on liabilities
42 Newport City Homes Housing Association Ltd
(1,188)
(600)
37
1,618
(1,365)
(2,900)
-
(1,165)
Notes to the financial statements (continued) for the year ended 31 March 2012 SHPS The Association participates in SHPS (the Scheme). The Scheme is funded and is contracted-out of the State Pension scheme.
The Association has operated the final salary with a 1/60th accrual rate for active members as at 9th March 2009. This does not reflect any benefit structure changes made from April 2010.
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 Association has operated the career average revalued earnings (CARE) with a 1/60th accrual rate benefit structure for new entrants from 1st October 2011. This does not reflect any benefit structure changes made from April 2010.
The Scheme operated a single benefit structure, final salary with a 1/60th accrual rate until 31 March 2007. From April 2007 three defined benefit structures have been available, namely:
The Trustee commissions an actuarial valuation of the Scheme every three years. The main purpose
• Final salary with a 1/60th accrual rate. • Final salary with a 1/70th accrual rate. • Career average revalued earnings (CARE) with a 1/60th accrual rate.
From April 2010 a further two defined benefit structures have been available, namely:
• Final salary with a 1/80th accrual rate. • Career average revalued earnings (CARE) with a 1/80th accrual rate.
A defined contribution benefit structure was made available from 1 October 2010. An employer can elect to operate different benefit structures for their active members and their new entrants. An employer can only operate one open defined benefit structure at any one time. An open benefit structure is one which new entrants are able to join.
43 Newport City Homes Housing Association Ltd
of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required, in respect of each benefit structure, so that the Scheme can meet its pension obligations as they fall due. From April 2007 the split of the total contribution rate between member and employer is set at individual employer level, subject to the employer paying no less than 50% of the total contribution rate. From 1 April 2010 the requirement for employers to pay at least 50% of the total contribution rate no longer applies. The actuarial valuation assesses whether the Scheme’s assets at the valuation date are likely to be sufficient to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by reference to market levels. Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns.
Notes to the financial statements (continued) for the year ended 31 March 2012 During the accounting period the Association paid contributions at the rate of 10.8%. Member contributions varied between 5.4% and 7.4%. As at the balance sheet date there were 13 active members of the Scheme employed by the Association. The annual pensionable payroll in respect of these members was £573,353. The Association continues to offer membership of the Scheme to its employees. 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. The Scheme is a multi-employer scheme, where the assets are co-mingled for investment purposes, and benefits Valuation Discount Rates:
are paid out of total Scheme assets. Accordingly, due to the nature of the Scheme, the accounting charge for the period under FRS17 represents the employer contribution payable. The last formal valuation of the Scheme was performed as at 30 September 2008 by a professionally qualified Actuary using the Projected Unit Method. The market value of the Scheme’s assets at the valuation date was £1,527m. The valuation revealed a shortfall of assets compared with the value of liabilities of £663m, equivalent to a past service funding level of 69.7%. The financial assumptions underlying the valuation as at 30 September 2008 were as follows:
% p.a.
Pre-Retirement
7.8
Non Pensioner Post Retirement
6.2
Pensioner Post Retirement
5.6
Pensionable Earnings Growth
4.7
Price Inflation
3.2
Pension Increases: Pre 88 GMP
0.0
Post 88 GMP
2.8
Excess Over GMP
3.0
Expenses for death-in-service insurance, administration and Pension Protection Fund (PPF) levy are included in the contribution rate. The valuation was carried out using the following demographic assumptions: Mortality pre-retirement
44 Newport City Homes Housing Association Ltd
– PA92 Year of Birth, long cohort projection, minimum improvement 1% p.a. Mortality post retirement – 90% S1PA Year of Birth, long cohort projection, minimum improvement 1% p.a.
Notes to the financial statements (continued) for the year ended 31 March 2012 The long-term joint contribution rates required from April 2010 from employers and members Benefit Structure
to meet the cost of future benefit accrual were assessed at: Long-term Joint Contribution Rate (% of pensionable salaries)
Final salary with a 1/60th accrual rate
17.8
Final salary with a 1/70th accrual rate
15.4
Career average revalued earnings (CARE) with a 1/60th accrual rate
14.9
Final salary with a 1/80th accrual rate
13.5
Career average revalued earnings (CARE) with a 1/80th accrual rate
11.9
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 £663m would be dealt with by the payment of deficit contributions of 7.5% of pensionable salaries, increasing each year in-line with salary growth assumptions, from 1 April 2010 to 30 September 2020, dropping to 3.1% from 1 October 2020 to 30 September 2023. Pensionable earnings at 30 September 2008 are used as the reference point for calculating these deficit contributions. These deficit contributions are in addition to the long-term joint contribution rates set out in the table above. The Scheme’s 30 September 2011 valuation is currently in progress and will be finalised by 31 December 2012. The results of the 2011 valuation will be included in next year’s Disclosure Note. Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). 45 Newport City Homes Housing Association Ltd
Employers that have closed the defined benefit section of the Scheme to new entrants 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 SHPS. New employers 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 new employers joining the Scheme between valuations up until 1 April 2010 do not contribute towards the deficit until two valuations have been completed after their date of joining. New employers joining the scheme after 1 April 2010 will be liable for past service deficit contributions from the valuation following joining. Contribution rates are changed on the 1 April that falls 18 months after the valuation date.
Notes to the financial statements (continued) for the year ended 31 March 2012 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 provided a response in respect of the September 2008 actuarial valuation in August 2011, stating that it does not propose to take any scheme funding action under Part 3 of the Pensions Act 2004. The Scheme Actuary has prepared an Actuarial Report that provides an approximate update on the funding position of the Scheme as at 30 September 2010. 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 £1,985m and indicated a reduction in the shortfall of assets compared to liabilities to approximately £497m, equivalent to a past service funding level of 80.0%. 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
46 Newport City Homes Housing Association Ltd
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 buy-out basis, i.e. the Scheme Actuary’s estimate of 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 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.
26. Contingent Liabilities The Association has been notified by The Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme, based on the financial position of the Scheme as at 30 September 2011. At this date the estimated employer debt for the Association was £521,265.
Central office Nexus House Mission Court Newport NP20 2DW
Tel: 01633 381111 www.newportcityhomes.com
Newport City Homes Housing Association Limited is registered by the Financial Services Authority as an Industrial and Provident Society with charitable rules, registration no 30192R and with the Welsh Government registration no L149.