Annual Report & Financial Statements
2014
Annual report and financial statements
Page Members, executives and advisors
2
Operating and financial review
3
Governance
17
Internal Control
21
Statement of Board responsibilities
22
Independent Auditor Report
23
Income and expenditure account
25
Reconciliation of movement in net assets
25
Balance sheet
26
Cash flow statement
27
Notes to the financial statements
28
Annual Report 2014
Page 1 of 48
Annual report and financial statements Members, executives and advisors The Board Mrs K Smart Mr A Ashton Ms J Bere Mr D Davies Mrs W Davies
Ms E Del Torto Ms R Fleri Mr I Gittens
Mrs S Lee Mr J McPeake Mr N O’Leary Mr J Rides Mr B Scholfield Mr P Wilkinson Mr J Williams
Executive Officers Mrs Anne Hinchey
Mr Shayne Hembrow
Mr Tony Wilson Mr Steve Porter Registered Office 3 Alexandra Gate Ffordd Pengam Cardiff CF24 2UD
Chair of the Board; Shareholder Board Member Vice Chair of the Board; Shareholder Board Member; Lead Member for Finance Resident Board Member; Appointed 19 April 2014 Resident Board Member; Member of Probity & Audit Committee; Board Representative Merthyr Care and Repair Shareholder Board Member; Board Representative for Slocombe Cottages for the Aged and Infirm; Member of Probity & Audit Committee Shareholder Board Member; Member of Probity & Audit Committee Shareholder Board Member; Chair of the Probity & Audit Committee; Board Member Cambria Maintenance Services Limited Shareholder Board Member; Lead Member for Support Services; Board Representative for Slocombe Cottages for the Aged and Infirm; Board Representative Bridgend Care and Repair Shareholder Board Member Co-opted Board Member; Appointed 19 April 2014 Shareholder Board Member; Lead Member for Development; Chair of the Cambria Maintenance Services Limited Board Resident Board Member; Member of Probity & Audit Committee; Lead Member for Housing Resident Board Member; Resigned 15 May 2014 Co-opted Board Member; Appointed 19 April 2014 Resident Board Member; Lead Member for Property Services; Board Member of Cambria Maintenance Services Limited; Board Representative Flintshire Care and Repair Chief Executive and Secretary; Board Member Cambria Maintenance Services Limited, Enfys Developments Limited and Castell Ventures Limited Deputy Chief Executive and Commercial Director; Board Member Cambria Maintenance Services Limited, Enfys Developments Limited and Castell Ventures Limited Finance Director; Board Member Cambria Maintenance Services Limited, Enfys Developments Limited and Castell Ventures Limited Operations Director; Board Member Enfys Developments Limited and Castell Ventures Limited Independent Auditors Haines Watts Wales LLP
Registered as a charitable Association under the Co-operative and Community Benefit Societies Act 2014 Registration Number 21114R Registered with the National Assembly for Wales, Registration Number L032
Annual Report 2014
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Annual report and financial statements Operating and financial review The Board presents its report and the audited financial statements for the year ended 31 December 2014.
Our vision and culture Our vision is: Strong, sustainable growth to make a difference to people’s lives, homes and communities. This vision underpins all that we do, driving our corporate priorities and actions. Our priorities follow a number of themes bringing a clear structure to help guide and manage all that the Association hopes to achieve.
More; homes for people to rent and buy Invest; making our housing warm and affordable to live in Grow; generating real opportunities for work for residents Technology; staff and residents making the most of new technology Care; becoming an excellent care and support provider Lives; supporting residents to make the best of their tenancies
In this operating and financial review, we have set out our progress during the year under these themes, augmented by an overview of how the organisation is run. The culture at the core of our business is made up from two main strands, our values and our operating principles. Our operating principles guide us in identifying exactly what work we undertake and our values guide us in how we carry out that work.
Annual Report 2014
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Annual report and financial statements More; homes for people to rent and buy In 2014 we brought into management 75 newly developed properties across Wales and also built and sold a low cost home ownership property.
Homes developed in 2014 5
5
Maesgwyn, Bridgend - 28 Social Rented
28
10
Kingsmill Road, Wrexham - 27 Social Rented Elm Street, Cardiff - 10 Retirement Housing Townmill Road, Vale - 5 Social Rented
27
Andrews Road, Cardiff - 5 Social Rented Total - 75 homes
Within this number are 10 units of retirement housing in Elm Street in Cardiff (pictured below), our first build of new build retirement housing in Cardiff for many years. Increasingly accommodation for older people will become more of an area of focus for future development, to help cater for a growing ageing population.
At the beginning of the year we celebrated the official opening of Vulcan Court, Merthyr. This was a unique renovation of the grade II listed building, once a centre of social revolutionary Chartist activity in the 19th century which had sadly fallen into dereliction, with a complementary new build in the court yard. We were delighted when this won small development of the year at the 2014 UK Housing Awards. With the end of the Welsh Government’s mortgage rescue scheme, our self-funded mortgage rescue scheme helps home owners who are struggling to pay their mortgages and are at risk of repossession. During 2014 there were 2 outright mortgage rescue property purchases enabling people to remain in their own homes during difficult times.
Annual Report 2014
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Annual report and financial statements We are working hard with our local authority partners to continue our strong, sustainable development growth with preparatory or construction work currently ongoing on ten sites, which will bring a further 301 homes into management over the next two years. Many of these are part of the Welsh Government’s Housing Finance Grant (HFG) initiative. We are delighted to be participating and helping the Welsh Government to meet their aspiration of an additional 1,000 new homes through this initiative of which our share will be nearly 200 properties, all being completed by March 2016.
Number of homes under development as at 31 December 2014 Glan Y Don, Flintshire - 58 Social Rented
33
Kingsmill Road, Wrexham - 24 Social Rented
58
24
New Road, Bridgend - 40 Social Rented Builth Hospital, Powys - 17 Social Rented
24 48
Rivulet Road, Wrexham - 20 Social Rented Quakers Yard, Merthyr - 17 Social Rented Maelor House, Ruabon - 19 Social Rented
40 19 18
20
17
Severnside, Powys - 39 Extra Care, 9 Supported Housing Cefndy Road, Denbighshire - 7 Intermediate Rented, 17 Social Rented Flint House, Flintshire - 33 Retirement Housing Total - 301 homes
During the year, ten new sites have been purchased which will provide over 400 new properties and terms agreed on a further nine sites which will provide over 280 new properties. This will help us meet the continuing demand for affordable housing and we are planning our highest level of investment into new homes for many years, as shown below:
Development spend 2015-2019 40
ÂŁm
35 30 25 20 15 10 5 2015
2016 2017 2018 2019 Development spend Social Housing Grant (Inc HFG)
Much of our construction activity during the year was carried out by our subsidiary company, Enfys Developments, which resulted in less irrecoverable value added tax for the Group as a whole.
Annual Report 2014
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Annual report and financial statements Invest; making our housing warm and affordable to live in Fuel Poverty It is our belief that no-one should be unable to afford to heat their home and as part of this we have designed a number of retrofit energy efficiency packages for our homes over the course of the year. Some of these are as simple as switching from inefficient electric heating systems to more efficient gas heating, of which we did over 300 in the year, aided by £0.5m of grant funding, or upgrading over 300 old inefficient boilers to more efficient modern ones, but others require a more creative solution. One such example is our scheme at Llwynbrain Close in Howey, Powys, where we installed state-of-the-art air source heat pumps and solar thermal panels in 15 properties. These are controlled by remote monitoring, meaning the houses are warmer and more fuel efficient to heat. We were pleased when this work was recognised at the Environment and Energy Awards 2014, where we won the Renewables Innovation Category. A second illustration is at one of our oldest properties, Caerau Court in Cardiff, where, to make properties warmer and more affordable to live in, we installed external wall insulation (part funded by an ARBED grant) and new boilers, as well as replacing flat roofs, windows and installing our first sprinkler system for improved fire safety. Green Residents The other strand of our investment policy is help to create community gardens and vegetable plots. This helps to build and create a sense of community, as well as promoting healthier living and eating. There has been some notable work in this area during 2014, with our residents from Buxton Court in Rhyl winning the Improving the Environment award category at the TPAS Cymru awards. Additionally our residents Paul Clark, Sandra Thomas and David Brigham, from our Oak Court retirement scheme in Penarth, were finalists in the Sustainable Tenants of the Year category at the Sustainable Housing Awards for their impressive work in developing the scheme’s garden.
Annual Report 2014
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Annual report and financial statements Grow; generating real opportunities for work for residents Community Enterprise During the year, we established our new Community Enterprise team to work with residents to help them find training, work experience and employment opportunities to assist them along the road to meaningful and sustainable employment. The team have piloted our approach in Merthyr, working with residents alongside our frontline staff and agencies operating in the area. Some of the opportunities we will provide will come from working with our contractors and suppliers, but some are also likely to come from our subsidiary companies Cambria Maintenance Services and Castell Ventures. Cambria Maintenance Services Cambria has almost quadrupled in size since we set it up in 2010 and now employs over 130 staff, providing reactive maintenance services for all of our properties and installing new kitchens and bathrooms as part of our ongoing property investment. As the company continues to grow, it will provide more training, apprenticeship and employment opportunities for our residents. Cambria has made us more efficient and saved us some ÂŁ1.8 million in the four years since we set it up. This is equivalent to 540 new kitchens, 620 bathrooms or 34 new grant funded homes. The business has undertaken over 27,500 repairs over the course of the year, in addition to replacing 283 kitchens, 434 bathrooms and 190 boilers.
Castell Catering Castell Catering is a division of Castell Ventures Limited and provides meals to the residents at our extra care schemes in Llys Jasmine in Mold and Nant y Mor in Prestatyn. The business now employs 23 people and as it continues to grow, we intend to offer opportunities for training and eventual employment to our residents. The kitchens are busy, having served over 45,000 good quality meals in 2014, with high levels of resident satisfaction. The two kitchens also succeeded in earning five star food safety ratings in the year, the highest level possible.
Annual Report 2014
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Annual report and financial statements Technology; staff and residents making the most of new technology Digital inclusion We have continued to roll out free Wifi to our residents, to help them get digitally included, particularly with the planned introduction of Universal Credit, where access will be online only. As part of these installations, Wifi is also accessible by staff, enabling them to do more for residents when out and about. We now have 77 wireless access points (WAPs) installed at 22 of our schemes, with much of the installation work being carried out by Cambria. Uptake continues to increase with 487 individual resident devices connected to the network in December 2014 and we expect it to keep on growing as we install more WAPs in 2015.
Total Wi-Fi Network Usage by Month (GB) 250,000 200,000 150,000 Staff
100,000
Residents 50,000
Guest
-
Of course access to the internet on its own is only half the solution and we are working with BT digital champions, to help with training to make full use of the internet. Our first digital inclusion event was held at Oldwell Court in Cardiff during the year.
Telecare and out of hours We have continued to grow the telecare, emergency alarm and out-of-hours services provided by our Customer Services Centre to both our retirement scheme residents and other housing associations. In the early part of 2014, we mobilised seven new contracts over a two month period, adding out-of-hours service provision to a further 16,000 homes and increasing the number of alarms monitored by 2,800. As at December 2014 we were providing out-of-hours service to 51,300 homes and the alarm monitoring service to 8,300 of our own and other housing association residents.
Annual Report 2014
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Annual report and financial statements Care; becoming an excellent care and support provider There were notable celebrations at both of our extra care schemes this year, with Nant y Môr in Prestatyn enjoying third birthday celebrations with residents burying a time capsule at the site. Meanwhile, Llys Jasmine, our Extra Care scheme in Mold, also enjoyed first birthday celebrations, as well as the opening of their memory café. The memory café is aimed at people with memory loss (diagnosed or undiagnosed) living in Flintshire and their carers. During 2014, we developed our first care and support strategy and we have begun practical training to raise awareness of dementia, learning disability, autism and mental health, so that our staff can better assist our residents. We have appointed a head of care and support and we will be applying to register as a provider of domiciliary care with the Care and Social Services Inspectorate Wales (CSSIW).
Lives; supporting residents to make the best of their tenancies Making a difference 2014 saw the Association’s seventh annual Making a Difference Awards (MAD), which is our way of honouring the community spirit shown by so many people who live in our homes. Over 200 people attended the ceremony and as always the standard of entries was excellent. Many of the media stories about housing association residents paint a bleak picture, but we know that the reality is different and therefore the awards are our way of recognising their contribution. In all, 9 awards were presented on the night, in categories including good neighbour, local hero and community project. Welfare Reform It has been just over 18 months since the bedroom tax came into effect, the first of several major changes that have continued to impact residents over the past year. Due to the work of staff the impact of the bedroom tax has not been as bad as it could have been and many residents have been helped to find ways to pay or move to more suitable accommodation. We now have fewer people affected by the bedroom tax and the vast majority of those who are affected are paying their rent. Universal Credit will in due course result in direct benefit payments to a large number of our residents though so far only a few have experienced it. The new system is in its very early stages and there are many issues still to be ironed out but so far we have worked successfully with the handful of our residents who have claimed the new benefit to ensure they have received their payment and we continue to learn how the system is operating. Though we have coped with the cuts to benefits brought about by welfare reform and helped residents sustain their tenancies it is important to remember that many people are still struggling with reductions to their income. This has been brought into stark relief recently with the publication of a report on foodbanks with the biggest percentage of people using them being those experiencing benefit sanctions or delays, whilst a large proportion also have a low income.
Annual Report 2014
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Annual report and financial statements Our organisation Our people We know the importance of investing in staff and the main focus of training during the year was the rollout and delivery of the Development Conversations and Leadership programmes, both as a result of months of research, planning and developing resources. The investment we made in these programmes was to ensure that line managers and staff have the right skills, support and guidance in order to both improve existing skills and develop new ones. The training was developed and delivered in close partnership with Learning 2 Inspire and between Development Conversations (332 attendees) and the full 5 day Leadership Training (127 attendees), the programme has reached almost everyone within the organisation and will be incorporated into all future induction programmes. In addition to this programme, we co-ordinated 259 topics across a range of learning activities, which was an increase of 67 topics from the previous year. Our recruitment process saw 55 individuals appointed to positions during 2014, of which over 50% were filled by internal candidates. There has been an average of 366 total staff in the Association in 2014, compared to 349 in 2013. In addition we have an unpaid Board of volunteers, currently numbering 14, including 2 co-opted members. During the year we successfully implemented pension auto enrolment, the government initiative designed to help people save more for their retirement. Prior to auto enrolment we had 7 staff participating in the SHPS defined contribution pension schemes and as at the year end this number had increased to 107 staff at contribution levels which are above the statutory minimum, thereby doing more for our staff. This is in addition to the 181 staff in the SHPS defined benefit scheme During the year we received recognition as a Chwarae Teg Evolve Exemplar Employer. This award recognises that WWH operates above and beyond legal compliance in the areas of equality and diversity where we create a flexible workplace and equality of opportunity for all our staff. Our staff have done amazing work to raise over ÂŁ30,000 in the last two years for the Stroke Association Wales. For the fifth year running we have been named in the Sunday Times 100 Best Places to Work list from throughout the UK in the not for profit sector. We were very pleased to move from 5th to 3rd place on the list in early 2015 (based on the 2014 survey), making us the highest placed Welsh company on the list. Companies are accredited between zero and three stars and we retained the highest level with three stars. Additionally we won the special Learning and Development award for our Leadership Training Programme, recognising investment in staff.
Annual Report 2014
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Annual report and financial statements Our finances The overall financial result was a surplus for the year of £4.6m (2013 - £8.5m). The 2013 result was abnormally high due to our withdrawal from Ceredigion and the £2.7m surplus recorded on the disposal of stock in that region. With the Welsh Housing Quality Standard already achieved and being maintained, in 2014 we were also able to invest more in external works to improve our property portfolio. In 2014 we spent an additional £1.3m on such repairs, including external wall cladding at our scheme at Caerau Court in Cardiff which makes the properties warmer and more fuel efficient. An analysis of the results compared with 2012 and 2013 is set out below:
I&E Account 2012-2014 45.0 40.0 35.0 30.0 25.0 20.0 15.0
2012
10.0
2013
5.0
2014
0.0
Rent and service charges from our properties account for virtually all of our revenue streams and cash inflow, as set out below for the last three years:
Total Group income 50
£m
40
Other
30
Service Charge
20
Rent
10 2012
2013
2014
Annual Report 2014
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Annual report and financial statements There was a 6.6% increase in rental income, mainly driven by the permitted 4.2% regulatory increase in April 2014 and increased property numbers, both in the year and the full year impact of a significant number of new properties completed in 2013. Our total operational costs (including both non-growth capital spend, such as on component replacements and office / IT equipment, and costs contained within the income and expenditure account) have risen due to increased investments in properties (major repairs) and increased reactive maintenance costs, with a 13% increase in the volume of repairs in 2014 compared to 2013. The rise in operating costs was broadly consistent with the increase in income. An analysis of our total costs (and therefore cash flows) is set out below:
Total Group operational spend Other
45.0
Premises
£m
40.0 35.0
Replacement capital expenditure
30.0
Major repairs
25.0
Interest
20.0
Site services
15.0 Routine maintenance
10.0
People
5.0 2010
2011
2012
2013
2014
Property component replacements
An explanation of the costs is as follows: (a) other includes a total of £29,287 (2013; £17,127) donated to charities comprising three Care and Repair agencies, a nominated Board charity and match funding to a range of charities supported through staff initiatives, (b) premises represent the costs of the Association’s Cardiff and Flint offices and Cambria’s Cardiff and Holywell offices, (c) replacement capital expenditure is comprised of replacement of site assets such as lifts and CCTV systems, expenditure on our premises and IT equipment, (d) major repairs are works such as boundaries, footpaths and communal areas which are charged as costs to the Income and Expenditure account as they arise, (e) interest represents the net interest payable arising on our borrowings, (f) site services comprise services such as emergency alarm, scheme manager support, cleaning and gardening. Certain services, principally emergency alarm related, are also provided to other persons, including residents of several other housing associations. The Association seeks to recover all site service direct costs, together with management charges to cover administrative costs, through service charges, (g) routine maintenance comprises day to day repairs and annual servicing, (h) people costs are comprised of staff salaries, employer national insurance, pensions, expenses and training, (i) property component replacements such as new kitchens, bathrooms and windows are capitalised in our balance sheet,
Annual Report 2014
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Annual report and financial statements As at 31 December 2014, the Association had borrowings of £128m compared to £113m at 31 December 2013. The Association had a total borrowing facility of £150m as at that date of which £45m was in facilities which can revolve until 2018. These provide considerable flexibility to the Association in that excess cash can be used to reduce the outstanding loans as an alternative to placing monies on deposit. The total interest cost in 2014 was £4.6m, up £0.2m on 2013 due to greater borrowing, whilst the average interest rate reduced from 4.3% to 3.9%. This has been due to careful management of the loan portfolio, with 35% of loans at variable rates to take advantage of the lower interest rate environment, and a favourable bond market environment. During 2014, we accessed a £12.5m 3.8% 28 year fixed rate bond from AHF, a subsidiary of THFC, specifically to finance schemes attracting the Welsh Housing Finance Grant (HFG). Post year end we have accessed a further £12.5m from AHF, backed by the EIB, at a rate of 2.82%, one of the lowest 30-year fixed rates ever achieved by a housing association in the UK. Since the year end, we have also arranged a further £20m of revolving credit facilities with Santander. These facilities are forecast to be sufficient to fund development plans for 2015, and will result in total loans for the Association of £182.5m should they be fully drawn.
Loan Balances and Interest
8 7
120
6
Loan balance £m
100
5 80 4 60 3 40
Interest £m
140
2
20
1
0
0 2010
2011 2012 Loan Balance
2013 Interest
2014
The Association’s loans have maturity dates ranging from 2018 to 2043. Some loans currently require regular principal repayments, others will require regular repayments commencing at future dates, and four loans are repayable in full in one go at maturity (£7.5m in 2031, £9.0m in 2035, £12.5m in 2042 and £20.0m in 2043). Principal loan repayments due in 2015 amount to £2.0m. As at 31 December 2014 the Association had in place £8.0m of confirmed bank facility to call upon under a long-term loan agreement, £12.5m available under the AHF EIB bond and £3.3m of cash and short term deposits of less than three months. The Association is operating within loan covenants. Gearing (defined as loan as a percentage of the sum of reserves and Social Housing Grant liability) as at 31 December 2014 was 40.0%. With the commencement of the schemes being developed with the HFG in 2014, gearing is rising more quickly than it otherwise would. Agreement has been reached with
Annual Report 2014
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Annual report and financial statements banks, which raises a 50% gearing restriction to a level which is unlikely to be reached prior to the loan expiring in 2026. A 60% restriction remains with another lender, which will not constrain existing development plans for the foreseeable future. The Association comfortably met its interest cover covenants and made a transfer of £2.0m to the major repairs reserve, from which it can be redrawn as necessary for interest cover calculation purposes. As part of the new Welsh Government (WG) regulatory framework all housing associations with at least 250 units in management are subject to a regulatory financial review and are issued with a financial viability judgement. We again received a “pass” judgement in February 2015, which is the highest rating awarded to associations or groups that are adequately resourced to meet current and future business and financial commitments. The Association uses the metric of free cash inflow to measure its ability to generate sufficient cash to meet all of its non-development activities without the need for further borrowing. There was a small free cash out flow in 2014 and a small free cash inflow in 2013. Both years contained above average component replacement and major repair spend due to the age profile of stock and WHQS compliance. Positive free cash flows are required in the long term to meet principal repayments on loans. Development costs are primarily funded from grant and additional bank and bond based borrowing. Summary representations of the balance sheet as at 31 December 2014 compared with 2012 and 2013 are shown below. There are no reportable post balance sheet events.
Balance Sheet 2012-2014 450 400 350
£m
300 2012
250
2013
200
2014
150 100 50 Housing properties
Social housing grant
Loans
Reserves
The Association annually publishes a five-year business plan which sets the aims and strategic direction of the Association and is the basis of financial projections for the next 30 years. The current five year plan is published on the Association’s website and shows operating surpluses and positive free cash flows in the five year period to 2019.
Annual Report 2014
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Annual report and financial statements Value for money The Association has continued with its strategy to improve financial and operational efficiency. The strategy focuses on service delivery, procurement, HR and financial (treasury and tax efficiency) with the emphasis on achieving value rather than just saving money. During the year, the Association has continued to work on waste within its systems. The creation of Cambria in 2010 has given much greater visibility and control over the repairs and maintenance system so that improvements have been made on measures such as first visit fix and appointments. Procurement continues to be an area of strong focus. The Group tendered for all Wales material supplies for both general and electrical repairs in the year, resulting in the appointment of Jewsons and L H Evans. This all Wales approach will reduce costs compared to the previous geographically separated procurement arrangements.
Kitchen Replacements
1,000
£4,000
800
£3,000
600
£2,000
400
£1,000
200
£0
Number of kitchens
Kitchen price
£5,000
2009
2010 2011 Kitchen Numbers
2012 2013 2014 Kitchen Price (RPI adjusted)
Cambria has undertaken all of the delivery of replacement kitchens and bathrooms in the year, and a growing proportion of replacement boilers. This saves VAT on labour and contractor profit, with the average cost per installation falling by more than just these savings due to greater efficiency in carrying out the works in-house rather than externally.
Bathroom price
£4,000
1,500
£3,000
1,000
£2,000 500
£1,000 £0
2009
2010
2011
Bathroom Numbers
2012
2013
2014
Number of bathrooms
Bathroom Replacements
Bathroom Price (RPI adjusted)
During the year, the Association developed a suite of efficiency trend measures which are reviewed by both the management team and the Board on a quarterly basis. The operating cost per unit graph below is just one of the measures, which for management purposes is further analysed into staff, reactive repairs and depreciation, these being the main drivers of
Annual Report 2014
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Annual report and financial statements cost changes per unit. Throughout the period, depreciation costs have been rising due to the large scale replacement of kitchens, bathrooms and other components as properties were brought up to the Welsh Housing Quality Standard. Whilst the unit prices of these components have been falling, through inflation they are inevitably much more expensive than the original components installed 15 to 30 years or so earlier. From 2009 through to 2013 the increase in depreciation costs was more than offset by reductions in reactive maintenance as works were brought in-house, saving both VAT on labour costs and contractor profit. In that same period staff cost per unit reduced as a relatively static number of staff absorbed work associated with a growing number of homes. Since 2013 costs per unit have risen back to 2009 levels as additional staff have been taken on to address welfare reform issues, substantial growth in housing stock, further complexity in the Group and new activities such as resident employability assistance and the expansion into Care and Support. In 2014 we also saw a large increase in reactive maintenance volumes, in part due to the wet and stormy winter of 2013/14.
Operating Costs per Unit (exc major works and adjusted for RPI) 3,500 3,000 2,500 2,000 ÂŁ 1,500 1,000 500 2009
2010
2011
2012
2013
2014
Operating Costs per Unit (exc major works and adjusted for RPI)
Our other focus is on property improvement making sure that the right investment decisions are made and then the best value is achieved. The reduction in unit costs, together with high levels of resident satisfaction, for both kitchens and bathrooms shows that we are having some success in achieving this. Development of new properties is a major area of spend. To maximise our tax efficiency in building new homes, during the year we built all of our new property developments through our subsidiary, Enfys Developments Limited. This allows the recovery of previously irrecoverable VAT and therefore reduces the overall construction cost of developing new properties. As noted above, the Association’s average interest cost has reduced even as the loan book has risen, due to a financial strategy that achieves lower cost funding by a mix of fixed and variable rate debt, and by accessing funding when market conditions appear favourable. By having an in-house legal resource, together with an ample pool of unpledged property assets with clean titles, we have been able to shorten any delays between completing loan agreements and having agreed security in place, thereby reducing the holding cost of debt. The Association also uses revolving credit facilities to mitigate the holding cost of long term debt.
Annual Report 2014
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Annual report and financial statements Governance The Association is controlled by a voluntary Board of Management which comprises up to fifteen members. Up to eight members are elected from shareholders, up to four are residents elected directly by residents and up to three may be co-opted from time to time to fill a skill shortage should one arise. Working together, all Board members guide the Association in the achievement of its aims and objectives. This includes overseeing finances, agreeing policies, monitoring performance, making strategic decisions, developing implementation plans and generally ensuring that all matters are conducted properly. There are separate Boards for Cambria, Enfys and Castell, which report annually to the Association’s Board, to allow the Association’s Board to consider the strategic direction of the Group and to ensure that the affairs of the Group are conducted properly. The Board leads a robust, evidence based and outcome focused self-evaluation process that is corroborated by the Association’s staff, residents and partners. This is part of the requirements of the regulation of the Association by the Welsh Government (WG), which publishes a set of delivery outcomes and guidance to make clear its expectations of the sector as a whole. The self-evaluation process adopted is an integral part of our approach to service and business planning. Progress against corporate priorities is reviewed quarterly by the Board following presentation of a Strategic, Operational and Financial update which also embraces new challenges and opportunities. A suite of service trend measures are used by the Board to understand the operational effectiveness of the business and the quality of service for residents. The emphasis is on measuring what matters most to residents in terms of outcomes along with indications of the type and frequency of customer demands so that the Board and staff can easily see the changing profile of customer requests. Board members are not remunerated but are entitled to receive properly authorised expenses when incurred on Association business. A Board member acting in good faith will not be liable to the Association for any loss. The Board meets on a formal basis approximately every six weeks, including an away day away from the office to consider the strategic direction and priorities of the Association. A Probity & Audit Committee meets when required, typically three times a year. Some Board members are designated as lead members, where they are expected to develop greater indepth knowledge in their lead area to help the Board as a whole. Risk The Board is committed to the management of risk in order to achieve the vision and goals of the Association and to remain a viable and sustainable business. Risk management is an important part of any successful organisation and its application can help ensure effective business and project planning so that resources and attention are appropriately directed. Additionally the Welsh Government, as the regulator of the housing association sector, has increased its focus on the management of risk, expecting housing associations, and in particular their Boards, to fully understand the business and financial risk environment in which they operate and to be confident that these risks are effectively managed. During 2014 Welsh Government published a guidance note, ‘sector risks facing housing associations in Wales’ and wants housing associations to have regard to these.
Annual Report 2014
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Annual report and financial statements The Association has revised the structure of how risks are managed and reviewed. In general the Association operates in a low risk environment, with most of the events or occurrences that could adversely affect the business taking considerable time to impact. Any such events would be identified through day to day management before any significant harm occurs. Therefore the regular review of risks focuses on those events which are more immediate or where their impact is very significant, as well as taking account of the Welsh Government’s assessment of sector-wide risks. In deciding which risks should be managed the emphasis is less on what could happen and more about what has happened or is known to be happening such as welfare reform. In this way the assessment has concentrated on learning from across the sector and from the Association’s own experience. A risk register, together with an update on strategic or corporate risks forms part of the quarterly performance report presented to Board. This report focuses on those areas which could fundamentally impact on the ability of the Group to achieve its objectives and will take account of any periodic guidance from the Welsh Government on sector-wide risk. Strategic risks are identified, monitored and, where appropriate contingency plans created, to ensure an effective response in the event of those risks materialising. A current example would be the bedroom tax, where the impact has been mitigated by the work of our staff helping residents to find ways to pay or move to more suitable accommodation. There are now fewer people affected by the bedroom tax and the vast majority of those who are affected are paying their rent. Other risks which arise that pose a threat to the business will be considered and added to the risk register where necessary. Operational risks are managed by the management within each system/service, making the management of risk an integral part of leadership within the Association. The operational risks and strategic risks are visible on our internal intranet allowing Board members and all staff to understand the risks the Association faces and how these are being managed. This allows regular updating as circumstances develop and new risks appear or existing ones are removed, resulting in a living, rolling assessment rather than a periodic review. The approach to risk is contained in a risk management policy. This policy helps ensure that the Association takes a balanced and proportionate approach to risk management that responds effectively to genuine risks which could have a significant impact without stifling innovation or creating an unnecessarily bureaucratic administrative burden. The Probity & Audit Committee is responsible for monitoring the effectiveness of the management policy and reports its findings to the Board. To assist the Committee in role, the Association’s Internal Audit Manager undertakes periodic audits of the management approach. These audits assess the effectiveness of governance, known management and the identification of new risk factors.
risk this risk risk
Shareholding Board members Shareholding Board members are elected to the Board of Management at the Annual General Meeting when nominations exceed available places. They must be either an existing Board member standing for re-election or be a shareholder nominated by an existing shareholder. Elections are by way of ballot of shareholders utilising postal and in-person voting.
Annual Report 2014
Page 18 of 48
Annual report and financial statements Shareholding Board members (continued) Shareholders are required to pay a one pound subscription fee and must not be a minor, must not have previously been expelled as a shareholder (unless authorised by a special resolution at a general meeting), and cannot be an employee of the Association. Shareholders must demonstrate that they can positively contribute to the future management of the Association and are obliged to act in the interests of the Association, for the benefit of the community. Potential shareholders can obtain more information by writing to the Secretary of the Association. Resident Board members The first Resident Board members were elected in 2002 to further enhance resident participation and involvement. As vacancies arise, Association residents have the opportunity to stand for election to the Board of Management, providing that they: (a) are not on an Introductory Tenancy, (b) are not bankrupt or subject to an agreement with creditors, (c) have not been convicted of an indictable offence within the last five years. The Board decides the method of election of Resident Board members. The current system is: (a) prior to the election process commencing, an advert is placed within “In Touch”, the Association’s resident magazine, asking for residents who are interested in becoming Board members. For those who are interested, an “Information Day” is held. Attendance at an Information Day is a compulsory requirement for those wishing to become Resident Board members, (b) nominations to the Board of Management are requested in advance of the Annual General Meeting from those residents who have attended an Information Day, (c) interested residents must complete an expression of interest in becoming a Resident Board member form stating how they meet the Board’s requirements in terms of skills, qualities and experience, (d) after attending a meeting with the Chief Executive to receive an explanation of the obligations of a Resident Board member, they must complete a nomination form which includes a statement of 100 words in support of their nomination to be used on the ballot paper, (e) ten other residents must support the nomination, (f) a postal ballot of all residents is held if nominations exceed available places, (g) those with the most votes become members of the Board of Management and their appointments are announced at the Annual General Meeting. Co-opted Board members The elected Board can appoint up to three co-opted members to the Board should the Board at any time determine that there is a need for supplementary skills. Co-opted members are appointed for a finite period and have the same voting rights as elected Board members save that they are not entitled to vote on matters pertaining to positions of office to the Board or issues affecting shareholders.
Annual Report 2014
Page 19 of 48
Annual report and financial statements All Board members Members are elected at the Annual General Meeting for a three year term. A maximum of three consecutive terms can be served. There must be a clear 12 month gap following the serving of the three consecutive terms before a member can re-join the Board in any capacity. Any period spent as a co-optee or casual vacancy holder does not count towards the maximum consecutive time. The collective and personal obligations of Board members are to: (a) understand and uphold the values and objectives of the Association, (b) monitor, supervise and control the Association’s affairs as custodians of its mission, (c) act objectively at all times and serve the interests of the Association before their own or the interests of any particular sector of the community served by the Association, (d) use independent judgement on strategy, performance and accountability, (e) act as an ambassador of the Association at all times, (f) ensure that an effective contribution is made by preparing for meetings and events, attending regularly and participating in discussions and decision-making, (g) acknowledge that an objective is to be ‘business-like’ without turning the Association into a business which trades purely for profit, (h) abide by the Association’s rules and code of governance, (i) handle the appointment of the Chief Executive. Statement of the Board’s requirements for the skills, qualities and experience of its members The Board’s requirements for the skills, qualities and experience of its members are that collectively they must: (a) have a balance of appropriate skills including (but not exhaustively) legal, business, financial, technical, community work, housing sector experience, relevant public sector experience, human resources and governance, (b) reflect the communities wherein the Association operates, (c) reflect the diversity of society in terms of a balance of gender, age, minority groups such as BME and disabled. Individually they must also: (a) be able to give the appropriate amount of time necessary to be trained, attend and prepare for meetings; (b) be able to work within a team and put personal considerations aside; (c) demonstrate an empathy with social housing. Extent to which these requirements are met by those Board members continuing in office, and those retiring and intending to re-offer themselves for election Following the annual extensive Board appraisal exercise the Board is happy to report that the requirements for the skills, qualities and experience, which it needs from its members, are fully met by those Board members continuing in office, and those retiring and intending to re-offer themselves for election.
Annual Report 2014
Page 20 of 48
Annual report and financial statements Internal Control The Board acknowledges its responsibility for ensuring that the Association and the Group have in place a system of controls that are appropriate to the various business environments in which they operate. These controls are designed to give reasonable assurance with respect to: (a) the reliability of financial information used within the Association and Group or for publication, (b) the maintenance of proper accounting records; and (c) the safeguarding of assets against unauthorised use or disposition. It is the Board’s responsibility to establish and maintain systems of internal financial control. Such systems can only provide reasonable and not absolute assurance against material financial mis-statement or loss. Key elements include ensuring that: (a) 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 restrict the unauthorised use of the Association’s assets, (b) experienced and suitably qualified staff take responsibility for important business functions. Annual procedures have been established to maintain standards of performance, as well as self-certification of risk control in all areas, (c) forecasts and budgets are prepared which allow the Board to monitor the key business risks and objectives and progress towards financial plans set for the year and the medium term; regular management accounts are prepared promptly, providing relevant, reliable and up-to-date financial and other information and significant variances from budgets are investigated as appropriate, (d) all significant new initiatives, major commitments and investment projects are subject to a formal authorisation procedure, through relevant committees comprising Board members and others, (e) the Board undertakes a quarterly review of the major risks facing the Association and the Group, (f) the Probity & Audit Committee reviews reports from management, the Internal Audit Manager and from the external auditors to provide reasonable assurance that control procedures are in place and are being followed. Committee makes regular reports to the Board; and (g) formal procedures have been established for instituting appropriate action to correct weaknesses identified from the above reports. The Board is satisfied that the Association and the Group has adequate resources to continue in operational existence for the foreseeable future and at present sees no reason for the situation to change. The Board is also satisfied that there are no weaknesses in the Association’s system of internal control which might lead to material losses, contingencies or uncertainties which require disclosure in the financial statements or the auditor’s report on the financial statements.
Annual Report 2014
Page 21 of 48
Annual report and financial statements Statement of Board responsibilities The Board is responsible for preparing the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Co-operative and Community Benefit Societies Act 2014 and Registered Social Landlord legislation requires the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Association and the Group and of the surplus or deficit of the Association and the Group for that period. In preparing those financial statements, the Board is required to select suitable accounting policies, as described on pages 28 to 31, and then apply them on a consistent basis, making judgements and estimates that are prudent and reasonable. The Board must also prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Association and the Group will continue in business. The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Association and the Group and to enable them to ensure that the financial statements comply with the relevant legislation. The Board is also responsible for safeguarding the assets of the Association and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board is responsible for the maintenance and the integrity of the corporate and financial information included on the Association’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. In so far as the Board is aware:
there is no relevant audit information of which the Association's and the Group’s auditors are unaware; and
the Board has taken all steps that they ought to have taken to make itself aware of any relevant audit information and to establish that the auditors are aware of that information.
A resolution to re-appoint Haines Watts Wales LLP as auditors will be proposed at the Annual General Meeting on 21 May 2015. By order of the Board
Mrs K Smart Chair of the Board
Annual Report 2014
Page 22 of 48
Annual report and financial statements Independent Auditor Report to Members of Wales & West Housing Association Limited Year ended 31 December 2014 We have audited the financial statements of Wales & West Housing Association Limited (‘the Association’) for the year ended 31 December 2014 which comprise the Group Income and Expenditure Account, the Group and Parent Balance Sheets, the Group 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 Co-Operative and Community Benefit Societies (Group Accounts) Regulations 1969, 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. Respective responsibilities of the Board and the auditor As explained more fully in the Statement of Board responsibilities, set out on page 22, 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 Groups 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 Groups corporate governance procedures or its internal financial control. 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 adequately 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 Operating and Financial review and supporting reports to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Annual Report 2014
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Annual report and financial statements Opinion on internal control In our opinion, with respect to the Board’s statement on internal financial control:
the Board has provided the disclosures 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.
Opinion on financial statements In our opinion the financial statements:
give a true and fair view of the state of the Group’s and of the parent Association’s affairs as at 31 December 2014 and of the Group’s income and expenditure for the year then ended;
have been properly prepared in accordance with the Co-Operative and Community Benefit Societies (Group Accounts) Regulations 1969, 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 Co-Operative and Community Benefit Societies (Group Accounts) Regulations 1969 require us to report to you if, in our opinion:
a satisfactory system of control over transactions has not been maintained; or
the parent Association financial statements are not in agreement with the accounting records and returns; 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.
Haines Watts Wales LLP Statutory Auditor 7 Neptune Court Vanguard Way Cardiff CF24 5PJ Date……………………..…………
Annual Report 2014
Page 24 of 48
Income and expenditure account for the year ended 31 December
Notes
2014 £’000
GROUP 2013 £’000
ASSOCIATION 2014 2013 £’000 £’000
Turnover Continuing operations
2
43,222
40,165
44,047
40,886
Operating costs Continuing operations
2
(34,629)
(30,024)
(35,454)
(30,468)
Operating surplus
4
8,593
10,141
8,593
10,418
Surplus on sale of fixed assets Interest receivable and similar income Interest payable and similar charges
5 7 8
562 34 (4,595)
2,755 42 (4,400)
562 40 (4,595)
2,755 48 (4,400)
Surplus on ordinary activities before taxation Taxation
9
4,594 (8)
8,538 0
4,600 (7)
8,821 0
Surplus for year transferred to reserves
20
4,586
8,538
4,593
8,821
The Group has no recognised gains and losses other than the surplus above and therefore no separate statement of total recognised gains and losses has been presented. There is no difference between the surplus on ordinary activities before taxation and the retained surplus for the year as stated above and their historical cost equivalents.
Reconciliation of movements in net assets for the year ended 31 December
Surplus for the year Opening net assets as previously reported
2014 £’000 4,586
GROUP 2013 £’000 8,538
43,320
34,782
43,633
34,812
Closing net assets
47,906
43,320
48,226
43,633
Annual Report 2014
ASSOCIATION 2014 2013 £’000 £’000 4,593 8,821
Page 25 of 48
Balance sheet at 31 December
Notes
2014 £’000
GROUP 2013 £’000
ASSOCIATION 2014 2013 £’000 £’000
Tangible fixed assets Housing land and buildings – gross cost Less: Social Housing grants Other grants Depreciation
10 11a 11b 11c
472,906 (263,291) (6,283) (40,097) 163,235
445,039 (250,168) (4,795) (38,036) 152,040
473,058 (263,291) (6,283) (40,097) 163,387
445,319 (250,168) (4,795) (38,036) 152,320
Fixed asset investments Equity loans Less: grants
13a 13b
Other tangible fixed assets
14
3,769 (3,559) 210 7,955
3,854 (3,526) 328 5,093
3,769 (3,559) 210 7,788
3,854 (3,526) 328 4,916
171,400
157,461
171,385
157,564
2,749
3,008
3,678
3,663
Total fixed assets Current assets Debtors: amounts falling due within one year Debtors: amounts falling due after more than one year Cash at bank and in hand Creditors: amounts falling due within one year Net current assets/(liabilities) Total assets less current liabilities
15a 15b 23 16
Non-current liabilities Creditors: amounts falling due after more than one year 17 Provisions for liabilities and charges 18 Capital and reserves Called up share capital Special reserve Major repairs designated reserve Revenue reserve Total capital and reserves
19 20 20 20
13,613 0 4,794 4,315 21,156 7,323 (18,364) (10,611) 2,792 (3,288) 174,192 154,173
13,613 0 3,842 3,757 21,133 7,420 (18,012) (10,503) 3,121 (3,083) 174,506 154,481
(126,146) (110,758) (140) (95) 47,906 43,320
(126,146) (110,758) (134) (90) 48,226 43,633
0 131 11,880 35,895 47,906
0 131 9,880 33,309 43,320
0 131 11,880 36,215 48,226
0 131 9,880 33,622 43,633
The financial statements on pages 25 to 48 were approved by the Board on 26 March 2015 and were signed on its behalf by:
Chair of the Board – Mrs K Smart
Vice Chair of the Board – Mr A Ashton
Secretary – Mrs A Hinchey
Annual Report 2014
Page 26 of 48
Cash flow statement for the year ended 31 December
Net cash inflow from operating activities
Notes 21
Interest received Interest paid Net cash outflow from returns on investment and servicing of finance
GROUP 2014 2013 £’000 £’000 14,516 15,689
ASSOCIATION 2014 2013 £’000 £’000 14,045 15,349
34 (4,560)
42 (4,685)
40 48 (4,560) (4,685)
(4,526)
(4,643)
(4,520) (4,637)
(4)
0
Taxation
(4)
0
Purchase and development of properties Grant received Property component replacements Purchase of other fixed assets Proceeds of sale of properties and other fixed assets Net cash outflow from capital expenditure and financial investment
(21,234) (25,045) 7,804 7,374 (8,691) (9,547) (3,720) (1,600)
(25,045) (25,707)
(24,974) (25,489)
Net cash outflow before financing
(15,059) (14,661)
(15,453) (14,777)
Housing loans received Housing loans repaid Net inflow from financing activities
22
17,437 10,500 (1,899) (2,045) 15,538 8,455
17,437 10,500 (1,899) (2,045) 15,538 8,455
Net increase/(decrease) in cash
22
796
Annual Report 2014
479
3,111
(6,206)
(21,234) (25,045) 7,804 7,374 (8,691) (9,547) (3,649) (1,382) 796
85
Page 27 of 48
3,111
(6,322)
Notes to the financial statements for the year ended 31 December
1
Principal accounting policies
A summary of the more important accounting policies are set out below:
Format of accounts The financial statements have been prepared in accordance with applicable financial reporting standards in the United Kingdom, including the Statement of Recommended Practice (SORP) for “Accounting by Registered Social Housing Providers� as updated in 2010, and comply with the Accounting Requirements for Social Landlords registered in Wales General Determination 2009.
Basis of accounting The financial statements are prepared on the historical cost basis of accounting.
Basis of consolidation The consolidated accounts include the results of Wales & West Housing Association Ltd and its trading subsidiary undertakings Cambria Maintenance Services Ltd, Enfys Developments Limited and Castell Ventures Limited. Consolidated accounts are required under the Co-operative and Community Benefit Societies Act 2014. Wales & West Housing Association Ltd is the parent entity and the ultimate parent entity. Where any conflict arises between the SORP 2010 and applicable financial reporting standards, then the SORP prevails.
Turnover Turnover represents rental and service charge income net of empty properties, gift aid, fees and revenue based grants receivable. All turnover is derived from United Kingdom operations.
Housing properties – fixed asset capitalisation and depreciation Housing properties are stated at cost. The cost of properties is their purchase price together with incidental costs of acquisition and direct costs of the development process. Where properties come into the ownership of the Association under section 106 agreements, these are often purchased at below cost price. Where this is the case the cost is grossed up to the true cost and the cost difference shown as imputed cost which is shown within property acquisitions, with the corresponding balance shown as imputed grant. "Housing properties in the course of construction" are stated at cost and are transferred into "social housing properties" when completed. Any overhead costs directly attributable to bringing fixed assets into their working condition for their intended purpose are capitalised. Expenditure on the initial purchase of land and buildings is capitalised and disclosed as part of housing properties in the course of construction. Interest on borrowings attributable to the net investment in a property during the course of construction is capitalised. Profits or losses on disposals of properties are recognised as at the date a sale becomes certain. The profit or loss 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 legal and valuation fees. The 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 profit or loss on that disposal.
Annual Report 2014
Page 28 of 48
Notes to the financial statements (continued) for the year ended 31 December
1
Principal accounting policies (continued)
Housing properties – fixed asset capitalisation and depreciation (continued) Some residents have rights under their tenancy agreement to purchase their homes at prices which are at a discount to the open market price. Some properties have been partially sold under shared ownership arrangements. Occupiers have full use of the properties concerned and pay a rent which reflects the proportional interest retained by the Association. In the balance sheet the Association’s interest is shown as a proportion of the original historic cost, corresponding to the interest retained. Occupiers are able to purchase some or all of that retained interest at a corresponding proportion of the current market value when that transaction arises. Depreciation is charged on the historic cost of property components after deducting grants. Grant is allocated to land and the main structure of the property, but not to other components. Freehold land is not depreciated. Leasehold land is depreciated over the remaining term of the leases. The depreciable amount is written off over the estimated useful lives from the date of purchase/build. Where a housing property comprises two or more major components with substantially different useful economic lives, each component is accounted for separately and depreciated over its individual useful economic life. Expenditure relating to the subsequent replacement or renewal of components is capitalised as incurred. Deprecation is charged on cost on a straight line basis over the component’s expected economic useful life as follows: House main structure Flat main structure
years 150 100
Other components: Back doors Boilers Front doors Kitchens: retirement housing Windows: installed pre 2000
years 40 15 30 20 20
Bathrooms Electrics Kitchens: general needs Roofs Windows: installed post 2000
years 30 60 17 80 40
Components on leasehold land are depreciated over the shorter of the above and the remaining period of the lease.
Grants Where developments have been financed wholly or partly by grants, the cost of these developments has been reduced by the amount of the grant received. These grants are received from central government agencies and local authorities and are offset against the cost of housing properties on the face of the balance sheet. The Companies Act 2006 requires tangible fixed assets to be included at purchase price, or production cost, less any provision for depreciation or diminution in value. However, this requirement conflicts with the generally accepted accounting principles for Registered Social Housing Providers set out in the SORP: Accounting by Registered Social Housing Providers. The purpose of grants is to subsidise the capital cost of affordable housing necessary to adopt the accounting treatment set out in the SORP to give a true and fair view. Grants are allocated proportionally against the historic cost of the land and main structure component of each property. No grant is allocated to other property components. Where grants are received in advance they are carried forward as current liabilities to be matched against future capital expenditure as it is incurred. Grant receivable in respect of completed schemes or those under construction is included as a debtor in the financial statements.
Annual Report 2014
Page 29 of 48
Notes to the financial statements (continued) for the year ended 31 December
1
Principal accounting policies (continued)
Grants (continued) Grants are repayable under certain circumstances, primarily following the sale of a property. Such repayable grants are included within creditors in the balance sheet.
Repairs and maintenance The costs of repairs and maintenance are expensed as incurred on the basis of work done at the balance sheet date.
Impairment Housing properties are annually reviewed for impairment. Where there is evidence of impairment, housing properties are written down to their recoverable amount.
Fixed assets – investments Equity loans have been made, under low cost home ownership arrangements, to homeowners who were not otherwise able to fully afford their homes using commercially available mortgages. Equity loans are included in the balance sheet at historic cost. The Association is entitled to a proportion of the market value corresponding to the equity interest at a time when homeowners either dispose of their property or when they choose to repurchase some, or all, of the equity loan.
Other fixed assets and depreciation Other tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is charged on a straight line basis so as to write off the cost less estimated residual value of assets over their expected useful economic lives as follows: Motor vehicles Office equipment Site equipment Office buildings
2 to 3 years 3 to 10 years 3 to 10 years written off over periods up to 60 years
Reserves A major repairs designated reserve is held to fund future major repairs to the housing stock of the Association. Transfers to and from the reserve are determined by the Board.
Pension costs The Group makes payments to defined benefit pension and defined contribution schemes on behalf of its employees. The schemes are funded by contributions partly from the employees and partly by the Group at rates determined by independent actuaries. The assets of the defined benefit schemes are invested separately from the Group assets in independently administered multi-employer funds. All pension costs have been calculated as if they arose within defined contribution schemes, as permitted by Financial Reporting Standard 17 (Retirement Benefits), as it is not possible to separately identify the scheme assets attributable to the Group on a consistent and reasonable basis.
Operating leases Costs in respect of operating leases are amortised on a straight line basis over the lease term.
Annual Report 2014
Page 30 of 48
Notes to the financial statements (continued) for the year ended 31 December
1
Principal accounting policies (continued)
Value added tax The Group (with the exception of Enfys Developments Limited) is partially exempt for VAT purposes, and claims are made for repayment of VAT on items that are specifically allowable. Expenditure is shown inclusive of irrecoverable VAT. Enfys Developments Limited can recover VAT, if incurred, and so costs are shown exclusive of VAT.
Taxation The Association adopted charitable rules with effect from 20 January 2005. No corporation tax is expected to arise after that date on charitable object activities. The remaining members of the Group are liable to Corporation Tax at the prevailing rate of taxation.
Deferred Tax Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date.
Loans Loan arrangement fees are capitalised and are amortised on a straight line basis over the duration of the loans. Interest is recognised in the income and expenditure account under the accruals principle, including that related to index linked loans where the cash settlement may be deferred.
Sinking fund deferred income Certain residents are required to contribute towards the costs of maintaining properties. Monies received in advance of maintenance expenditure are credited to sinking fund deferred income accounts, to which interest is applied.
Provisions Provisions are recognised where uncertainty exists in relation to 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 Group’s best estimate of potential liabilities.
2
Analysis of turnover and costs (a)
Particulars of turnover, operating costs and operating surplus Operating Operating Turnover costs surplus 2014 2014 2014 £'000 £'000 £'000
Social housing lettings Other social housing activities Gift aid Non-social housing activities Lettings Other Total
ASSOCIATION Operating Operating Turnover costs surplus 2013 2013 2013 £'000 £'000 £'000
40,910
(33,135)
7,775
38,591
(28,852)
9,739
964
0
964
790
0
790
130 2,043 44,047
(58) (2,261) (35,454)
72 (218) 8,593
264 1,241 40,886
(198) (1,418) (30,468)
66 (177) 10,418
Annual Report 2014
Page 31 of 48
Notes to the financial statements (continued) for the year ended 31 December
2
Analysis of turnover and costs (continued) (a)
Particulars of turnover, operating costs and operating surplus (continued)
The analysis above represents the results of Wales & West Housing Association Limited, which is the only registered housing provider in the Group. The other trading members of the Group, Cambria Maintenance Services Limited, Enfys Developments Limited and Castell Ventures Limited contributed a further £819k (2013; £512k), £136k (2013; £0k) and £9k (2013; £1k) respectively to the operating surplus. After deducting gift aid, which nets out on consolidation, this takes the Association reported operating surplus of £8,593k (2013; £10,418k) to the Group reported operating surplus of £8,593k (2013; £10,141k).
(b)
Particulars of income and expenditure from social housing lettings ASSOCIATION General Other social needs and housing sheltered Supported letting housing housing income £’000 £’000 £’000
Income Rent receivable Service charge income Grant income for support services Other revenue grants Turnover from social housing lettings Operating costs Management Service charges Routine maintenance Major repairs expenditure Bad debts Depreciation of housing properties Costs of sc heme c losure
Other costs Operating costs on social housing activities Operating surplus on social housing lettings Memorandum information: Rent foregone due to properties being vacant
2014 Total £’000
2013 Total £’000
35,167 4,792 316 0
588 0 0 0
47 0 0 0
35,802 4,792 316 0
33,578 4,693 320 0
40,275
588
47
40,910
38,591
(6,674) (5,070) (9,782) (4,924) (251) (4,889) (120) (1,064)
(80) 0 (117) (59) 0 (59) 0 (13)
(17) 0 0 0 0 (13) 0 (3)
(6,771) (5,070) (9,899) (4,983) (251) (4,961) (120) (1,080)
(6,002) (4,849) (8,371) (3,598) (305) (4,790) 0 (937)
(32,774)
(328)
(33)
(33,135)
(28,852)
7,501
260
14
7,775
9,739
305
0
0
305
354
Annual Report 2014
Page 32 of 48
Notes to the financial statements (continued) for the year ended 31 December
3(a) Directors' emoluments The remuneration paid to the directors (defined as members of the Board and the Executive Officers) of the Group and Association was:
Aggregate emoluments of executive officers Aggregate emoluments of Board members Emoluments of highest paid director (Chief Executive), excluding pension contributions
GROUP & ASSOCIATION 2014 2013 £’000 £’000 431 418 0 0 130
124
Retirement benefits are accruing under defined benefit schemes. The Chief Executive is an ordinary member of a contributory pension scheme (Cardiff and Vale of Glamorgan Pension Fund). Employer contributions were made at 22.7% of salary to 31 March 2014 and 20.6% of salary from 1 April 2014. No enhancement or special terms apply and the Association makes no contribution to any individual pension arrangement. The accrued pension and the accrued lump sum (comprising contributions from both employee and employer) in respect of the highest paid director (Chief Executive) at 31 December 2014 were £49,300 (2013; £47,362) and £109,695 (2013; £106,514) respectively. GROUP & ASSOCIATION 2014 2013 £’000 £’000 Expenses reimbursed to directors not chargeable to United Kingdom taxation for the year ended 31 December
14
18
3(b) Employee information The average number of staff (including executives) employed during the year was:
Actual Full time equivalent
Staff costs (for the above persons): Wages and salaries Social security costs Pension costs
Annual Report 2014
2014 Staff 511 454
GROUP 2013 Staff 461 407
ASSOCIATION 2014 2013 Staff Staff 366 349 316 303
2014 £’000
2013 £’000
2014 £’000
2013 £’000
12,390 980 1,492 14,862
10,986 897 1,250 13,133
9,054 683 1,466 11,203
8,434 657 1,238 10,329
Page 33 of 48
Notes to the financial statements (continued) for the year ended 31 December
4
Operating surplus
Operating surplus is stated after charging: Depreciation Bad debts Auditors' remuneration: - In their capacity as auditors - In respect of other services Operating lease rentals - Land and buildings - Other assets
5
2014 £’000
GROUP 2013 £’000
ASSOCIATION 2014 2013 £’000 £’000
5,855 251
5,590 305
5,781 251
5,514 305
26 22
25 19
26 7
25 7
68 25
71 33
68 25
71 33
Surplus on sale of fixed assets GROUP & ASSOCIATION 2014 2013 £’000 £’000
Sales proceeds: Housing properties Cost of sales: Housing properties Surplus on sale of fixed assets
6
796 796
3,138 3,138
(234) (234) 562
(383) (383) 2,755
Contingent liabilities
The Association is a participating employer member of the Pension Trust’s Growth Plan. This is a multiemployer pension scheme, which is in most respects a money purchase arrangement but it also has some guarantees. Employees of the Association have participated in the Growth Plan primarily through the use of additional voluntary contributions (AVCs). In accordance with the Occupational Pension Schemes (Employer Debt on Withdrawal) Regulations 2005, a potential debt can arise on employers that participate in the Growth Plan. The debt will only crystallise in the event that the Association ceases to participate in the scheme or in the event of the scheme winding up at a time when it is not fully funded on a buy-out basis. The Association has been notified by the Pensions Trust that the estimated employer debt on withdrawal from the plan based on the financial position of the plan as at 30 September 2011 was £0.4m. Similarly an employer debt could arise on withdrawal from the Association’s main final salary pension scheme arrangements through the Social Housing Pension Scheme (SHPS) and the Cardiff and Vale of Glamorgan Pension Fund. The estimated employer debt for the Association on withdrawal from the SHPS plan based on the financial position of the scheme as at 30 September 2011 was £30.8million and from the Cardiff and Vale of Glamorgan Pension Fund as at 31 March 2007 was £1.1million. As events which could crystallise the debt are unlikely to arise in the foreseeable future, no provision is deemed necessary.
Annual Report 2014
Page 34 of 48
Notes to the financial statements (continued) for the year ended 31 December
7
Interest receivable and similar income
Interest receivable from investments
8
GROUP 2013 £’000 42
ASSOCIATION 2014 2013 £’000 £’000 40 48
2014 £’000
GROUP 2013 £’000
ASSOCIATION 2014 2013 £’000 £’000
4,594 1 4,595
4,400 0 4,400
Interest payable and similar charges
On bank loans and overdrafts and other loans: Repayable wholly or partly in more than 5 years Interest payable to sinking funds
9
2014 £’000 34
4,594 1 4,595
4,400 0 4,400
Corporation Tax 2014 £’000
GROUP 2013 £’000
ASSOCIATION 2014 2013 £’000 £’000
3 4 7
0 0 0
3 4 7
0 0 0
Origination and reversal of timing differences
1
0
0
0
Tax on ordinary activities
8
0
7
0
Current Tax United Kingdom Corporation Tax at 20% (2013: 20%) Underprovision in respect of prior years Current taxation charge Deferred Tax
The Association adopted charitable status with effect from 20 January 2005 and therefore no taxation is payable on the profits arising from the charitable activities it undertakes. Taxation is only payable on feed-in tariff income received in respect of solar panels installed on the roofs of a number of the Association’s properties. Of the profit before tax of £4,600,000, the profit chargeable to corporation tax (relating to feed-in tariff income) was £14,762 resulting in a current year tax charge of £2,952. The under provision in the prior year relates to a profit chargeable to corporation tax of £22,066 in 2013, resulting in tax paid of £4,413. Cambria Maintenance Services Limited, Enfys Developments Limited and Castell Ventures Limited are liable to UK corporation tax but the current taxable profits in each company have been reduced to £nil by gift aid payments to the Association as the parent company. A deferred tax charge of £651 arose in Cambria Maintenance Services Limited and has been provided for in full.
Annual Report 2014
Page 35 of 48
Notes to the financial statements (continued) for the year ended 31 December
10
Tangible fixed assets – Housing land and buildings – gross cost GROUP
At 1 January 2014 Property acquisitions Schemes completed Imputed costs Reclassification Reclassification (to)/from investments Component additions to existing properties Components removed Housing property disposals At 31 December 2014
Social Market Properties in Housing Shared Rented the course of Properties ownership Properties construction £’000 £’000 £’000 £’000 424,745 547 2,362 17,385 2,098 19,616 8,245 (8,245) 1,232 0 39 (39) 0 (63)
(63)
8,939 (2,333) (204)
4 0 0
(1,422)
442,698
551
901
Housing properties comprise: Freehold land and buildings Long leasehold land and buildings Short leasehold land and buildings
At 1 January 2014 Property acquisitions Schemes completed Imputed costs Reclassification Reclassification (to)/from investments Component additions to existing properties Components removed Housing property disposals At 31 December 2014
Total £’000 445,039 21,714 0 1,232 0
Social Market Housing Shared Rented Properties ownership Properties £’000 £’000 £’000 424,983 547 2,362 2,098 8,245 1,232 39 (39)
8,943 (2,333) (1,626) 28,756
472,906
2014 £’000
2013 £’000
450,374 22,463 69
416,392 28,580 67
472,906
445,039
ASSOCIATION Properties in the course of construction Total £’000 £’000 17,427 445,319 19,488 21,586 (8,245) 0 0 1,232 0 0
(63)
(63)
8,939 (2,333) (204)
4 0 0
(1,422)
442,936
551
901
8,943 (2,333) (1,626) 28,670
473,058
Social Housing Properties include one property held for sale at a gross cost of £371,108, grant of £160,959 and depreciation of £152,647 giving a net book value of £57,502.
Annual Report 2014
Page 36 of 48
Notes to the financial statements (continued) for the year ended 31 December
10 Tangible fixed assets – Housing land and buildings – gross cost (continued) 2014 £’000 Housing properties comprise: Freehold land and buildings Long leasehold land and buildings Short leasehold land and buildings
2013 £’000
450,526 22,463 69
416,672 28,580 67
473,058
445,319
Works charged to existing properties that have been capitalised are shown above under component additions to existing properties, works charged through the Income and Expenditure account during 2014 amounted to £3,584,000 (2013; £2,234,000).
11(a) Tangible fixed assets - Social housing grants
At 1 January 2014 Property acquisitions Schemes completed Housing property disposals At 31 December 2014
Social Housing Shared Other Properties ownership Properties £’000 £’000 £’000 241,343 360 826 62 2,402 (31) 0 (826) 243,776
360
0
GROUP & ASSOCIATION Properties in the course of construction Total £’000 £’000 7,639 250,168 13,918 13,980 (2,402) 0 (857) 19,155
263,291
Grant received or receivable to date is wholly attributable to capital works.
11(b) Tangible fixed assets - Other grants
At 1 January 2014 Property acquisitions Reclassification (to)/from investments Imputed grant At 31 December 2014
Social Housing Shared Other Properties ownership Properties £’000 £’000 £’000 4,515 0 0 344
GROUP & ASSOCIATION Properties in the course of construction Total £’000 £’000 280 4,795 344
(63) 1,207 6,003
Annual Report 2014
0
0
Page 37 of 48
0
(63) 1,207
280
6,283
Notes to the financial statements (continued) for the year ended 31 December
11(c) Tangible fixed assets – Housing land and buildings – Depreciation Social Housing Shared Other Properties ownership Properties £’000 £’000 £’000 37,498 17 521 4,862 3 140 (2,333) 0 0 (8) 0 (603)
At 1 January 2014 Charge for the year Components removed Housing property disposals At 31 December 2014
12
40,019
20
GROUP & ASSOCIATION Properties in the course of construction Total £’000 £’000 0 38,036 5,005 (2,333) (611)
58
0
40,097
Units in management
General needs and retirement Extra care Scheme managers Intermediate rented Supported housing Shared Ownership
GROUP & ASSOCIATION Closing Opening units at units at New Mortgage Rescue Sales 31/12/14 01/01/14 Build 8,194 75 2 (1) 8,270 121 121 19 (2) 17 36 36 101 101 22 22
Sub total social housing units
8,493
Market rented Equity stake Managed for another HA Properties managed for private owners
6 39 12 1,114
Sub total non social housing units
1,171
1
Total units owned and managed
9,664
76
75
2
(3)
8,567
2
6 40 12 1,116
0
2
1,174
2
(1)
9,741
1
Within social housing available to rent 83 units were vacant as at 31 December 2014 (31 December 2013; 92 units).
Annual Report 2014
Page 38 of 48
Notes to the financial statements (continued) for the year ended 31 December
13
Fixed asset investments
13(a) Equity loans GROUP & ASSOCIATION 2014 2013 £’000 £’000 3,854 3,947 0 250 82 25 63 0 (230) (368) 3,769 3,854
At 1 January Additions Imputed costs Reclassification (to)/from social housing Disposals At 31 December
13(b) Grants GROUP & ASSOCIATION 2014 2013 £’000 £’000 3,526 3,629 0 0 107 0 63 0 (137) (103) 3,559 3,526
At 1 January Additions Imputed grant Reclassification (to)/from social housing Disposals At 31 December
14
Other tangible fixed assets GROUP Motor Office Site vehicles equipment equipment £’000 £’000 £‘000
Freehold office property £’000
Total £’000
Cost At 1 January 2014 Additions Disposals
167 66 (15)
3,094 592 0
5,899 369 (32)
1,874 2,693 0
11,034 3,720 (47)
At 31 December 2014
218
3,686
6,236
4,567
14,707
Depreciation At 1 January 2014 Charge for year Eliminated on disposals
45 52 (7)
2,217 351 0
3,025 406 (32)
654 41 0
5,941 850 (39)
At 31 December 2014
90
2,568
3,399
695
6,752
At 31 December 2014
128
1,118
2,837
3,872
7,955
At 1 January 2014
122
877
2,874
1,220
5,093
Net book value
Annual Report 2014
Page 39 of 48
Notes to the financial statements (continued) for the year ended 31 December
14
Other tangible fixed assets (continued) ASSOCIATION Freehold office property Total £’000 £’000
Motor Office Site vehicles equipment equipment £’000 £’000 £‘000 Cost At 1 January 2014 Additions Disposals
11 0 0
3,021 591 0
5,836 364 (32)
1,874 2,693 0
10,742 3,648 (32)
At 31 December 2014
11
3,612
6,168
4,567
14,358
Depreciation At 1 January 2014 Charge for year Eliminated on disposals
11 0 0
2,168 341 0
2,993 394 (32)
654 41 0
5,826 776 (32)
At 31 December 2014
11
2,509
3,355
695
6,570
At 31 December 2014
0
1,103
2,813
3,872
7,788
At 1 January 2014
0
853
2,843
1,220
4,916
Net book value
15(a) Debtors: amounts falling due within one year
Rental and service charge debtors Bad debt provision for rental and service charges Capital debtors Inter-group balances Loans to employees Other debtors and prepayments
2014 £’000
GROUP 2013 £’000
1,985 (947) 378 0 20 1,313 2,749
1,940 (959) 783 0 4 1,240 3,008
ASSOCIATION 2014 2013 £’000 £’000 1,985 (947) 378 1,159 20 1,083 3,678
1,940 (959) 783 983 4 912 3,663
15(b) Debtors: amounts falling due after more than one year
Capital debtors
Annual Report 2014
2014 £’000
GROUP 2013 £’000
13,613 13,613
0 0
ASSOCIATION 2014 2013 £’000 £’000 13,613 13,613
Page 40 of 48
0 0
Notes to the financial statements (continued) for the year ended 31 December
16
Creditors: amounts falling due within one year
Housing loans Capitalised loan fees Rents and service income received in advance Grants received and receivable in advance Taxation and social security Sinking fund deferred income Accrued interest Intergroup balance Accruals and other deferred income
17
2014 £’000 2,071 (82) 811 8,770 351 390 590 0 5,463 18,364
GROUP 2013 £’000 2,048 (68) 792 1,850 322 353 511 0 4,803 10,611
ASSOCIATION 2014 2013 £’000 £’000 2,071 2,048 (82) (68) 811 792 8,770 1,850 266 249 390 353 590 511 1,872 1,606 3,324 3,162 18,012 10,503
Creditors: amounts falling due after more than one year
Recycled Capital Grant Fund Housing loans Accrued mortgage interest Capitalised Loan fees
2014 £’000 210 126,508 293 (865) 126,146
GROUP 2013 £’000 179 111,121 205 (747) 110,758
ASSOCIATION 2014 2013 £’000 £’000 210 179 126,508 111,121 293 205 (865) (747) 126,146 110,758
Housing loans are secured by specific charges on the Association's housing properties. Rates of interest during the year ranged from 0.74% up to 11.2%. The weighted average rate of interest for 2014 was 3.89% (2013; 4.27%). As at 31 December 2014, 65% of loans were at fixed rates and 35% were at variable rates. The loans are repayable as follows:
Due within: One year or less Between one and two years Between two and five years In five years or more Repayable otherwise than by instalments in more than five years Repayable by instalments wholly or partly in more than five years In five years or more
Annual Report 2014
2014 £’000
GROUP 2013 £’000
ASSOCIATION 2014 2013 £’000 £’000
2,071 2,263 8,518 115,727 128,579
2,048 2,043 8,795 100,283 113,169
2,071 2,263 8,518 115,727 128,579
2,048 2,043 8,795 100,283 113,169
47,960
36,500
47,960
36,500
67,767 115,727
63,783 100,283
67,767 115,727
63,783 100,283
Page 41 of 48
Notes to the financial statements (continued) for the year ended 31 December
17
Creditors: amounts falling due after more than one year (continued)
The movement on the Recycled Capital Grant Fund was as shown below: GROUP 2014 2013 £’000 £’000 At 1 January 2014 179 123 Utilised during the year 0 0 Additions during the year 31 56 At 31 December 2014 210 179
18
ASSOCIATION 2014 2013 £’000 £’000 179 123 0 0 31 56 210 179
Provisions for liabilities and charges
Deferred taxation arises in Cambria, a 100% subsidiary and represents timing of tax payments due. Insurance provisions relate to excess levels on known insurable claims yet to be settled. Contractual obligations represent a dilapidations provision on a leased office. GROUP Contractual Deferred obligations Insurance taxation Total £’000 £’000 £’000 £’000 At 1 January 2014 0 90 5 95 Utilised during the year 0 0 0 0 Released during the year 0 0 0 0 Additions during the year 22 22 1 45 At 31 December 2014 22 112 6 140 Contractual obligations £’000 0 0 0 22 22
At 1 January 2014 Utilised during the year Released during the year Additions during the year At 31 December 2014
19
Insurance £’000 90 0 0 22 112
ASSOCIATION Deferred taxation Total £’000 £’000 0 90 0 0 0 0 0 44 0 134
Called-up share capital GROUP & ASSOCIATION 2014 2013 £ £
Allotted, issued and fully paid At 1 January Issued during the year Shares cancelled during the year At 31 December
74 5 (3) 76
81 3 (10) 74
Shareholders have no entitlement to dividends or return of monies in respect of shares surrendered or a share in the assets in the event of the Association being wound up. No shareholder may hold more than one share and each share shall carry only one vote.
Annual Report 2014
Page 42 of 48
Notes to the financial statements (continued) for the year ended 31 December
20
Reserves GROUP
At 1 January 2014 Surplus for the year Transfer to major repairs designated reserve Balance at 31 December 2014
Special reserve £'000 131 0 0
Major repairs designated reserve £'000 9,880 0 2,000
Revenue reserve £'000 33,309 4,586 (2,000)
131
11,880
35,895
Special reserve £'000 131 0 0 131
At 1 January 2014 Surplus for the year Transfer to major repairs designated reserve Balance at 31 December 2014
ASSOCIATION Major repairs designated Revenue reserve reserve £'000 £'000 9,880 33,622 0 4,593 2,000 (2,000) 11,880 36,215
The Special reserve was established following the transfer of engagements of Corlan Housing Association, Corlan Co-op Housing Association and Western Permanent, representing goodwill and capital.
21 Reconciliation of surplus before taxation to net cash inflow from operating activities
Surplus for the year before taxation Interest payable Interest receivable Depreciation Surplus on sale of fixed assets Movement in working capital Net cash inflow from operating activities
2014 £’000 4,594 4,595 (34) 5,855 (562) 68 14,516
Annual Report 2014
GROUP 2013 £’000 8,538 4,400 (42) 5,590 (2,755) (42) 15,689
ASSOCIATION 2014 2013 £’000 £’000 4,600 8,821 4,595 4,400 (40) (48) 5,781 5,514 (562) (2,755) (329) (583) 14,045 15,349
Page 43 of 48
Notes to the financial statements (continued) for the year ended 31 December
22
Reconciliation of net cashflow to movement in net debt 2014 £’000 479 (15,538) (15,059) 128 (108,854) (123,785)
Increase/(decrease) in cash in year (Increase) in debt Net cash outflow before financing Accrued interest added to principal Net debt at 1 January Net debt at 31 December
23
GROUP 2013 £’000 (6,206) (8,455) (14,661) 0 (94,193) (108,854)
ASSOCIATION 2014 2013 £’000 £’000 85 (6,322) (15,538) (8,455) (15,453) (14,777) 128 0 (109,412) (94,635) (124,737) (109,412)
Analysis of net debt GROUP At 1 January 2014 £’000 4,315 (113,169) (108,854)
Cash at bank and in hand Loans
Accrued interest Cash flow added to during the principal year £’000 £’000 0 479 128 (15,538) 128 (15,059)
At 31 December 2014 £’000 4,794 (128,579) (123,785)
ASSOCIATION At 1 January 2014 £’000 3,757 (113,169) (109,412)
Cash at bank and in hand Loans
24
Accrued interest Cash flow added to during the principal year £’000 £’000 0 85 128 (15,538) 128 (15,453)
At 31 December 2014 £’000 3,842 (128,579) (124,737)
Capital commitments
GROUP & ASSOCIATION 2014 2013 £’000 £’000 Capital expenditure that has been contracted for but has not been provided for in the financial statements 15,783 11,395 Capital expenditure that has been authorised by the Board but has not yet been contracted for
12,249
10,981
At 31 December 2014 the Association intended to fund this expenditure from social housing grants, loan drawdown from loan facilities already in place and new bank facilities. As at that date the Association had cash and available undrawn facilities of £23.8m and heads of terms had been signed on a new £20 million loan with a view to legal completion during 2015.
Annual Report 2014
Page 44 of 48
Notes to the financial statements (continued) for the year ended 31 December
25
Operating leases
At 31 December the Group had annual commitments under operating leases as follows:
Land and Office buildings equipment £’000 £’000 Leases expiring: Within one year Between two and five years
26
0 68 68
5 4 9
2014 Motor vehicles £’000 0 14 14
GROUP & ASSOCIATION 2013 Land and Office Motor buildings equipment vehicles £’000 £’000 £’000 0 68 68
2 4 6
2 14 16
Pension schemes
The Group makes pension contributions on behalf of its employees to defined benefit and money purchase schemes. Two defined benefit structures are made available through 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 arrangement. Employer participation is subject to adherence with the employer responsibilities and obligations as set out in the “SHPS House Policies and Rules Employer Guide”. One of the structures is based on final salary with a 1/60th accrual rate, and the other, which has been open to new members since 1 April 2011, is based on career average revalued earnings (CARE) with a 1/60th accrual rate. The final salary scheme was closed to new members on 31 March 2011. The Trustee commissions an actuarial valuation of the Scheme every 3 years. The main purpose of the valuation is to establish 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. The split of the total contribution rate between member and employer is set at individual employer level. The actuarial valuation assesses whether the Scheme’s assets at the valuation date are likely to be sufficient to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by reference to market levels. Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. During the accounting period the Association paid contributions at the rate of 9.05% in respect of the CARE structure and 9.7% in respect of the final salary structure. Member contributions were also 9.05% in respect of the CARE structure and 9.7% of the final salary structure. In addition the Association made an annual contribution towards the past service deficit of £0.66m to March 2014 and £0.69m from April 2014. As at the balance sheet date there were 181 (2013; 184) active members of the Scheme employed by the Association. The annual pensionable payroll in respect of these members was £5,305,023 (2013; £5,296,510). 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 SHPS Scheme is a multi-employer scheme, where the assets are co-mingled for investment purposes, and
Annual Report 2014
Page 45 of 48
Notes to the financial statements (continued) for the year ended 31 December
26
Pension schemes (continued)
benefits 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 2011 by a professionally qualified Actuary using the Projected Unit Method. The market value of the Scheme’s assets at the valuation date was £2,062 million. The valuation revealed a shortfall of assets compared with the value of liabilities of £1,035 million, equivalent to a past service funding level of 67.0%. The Scheme Actuary has prepared an Actuarial Report that provides an approximate update on the funding position of the Scheme as at 30 September 2013. Such a report is required by legislation for years in which a full actuarial valuation is not carried out. The market value of the Scheme’s assets at the date of the Actuarial Report was £2,718 million. The Actuarial Report revealed a shortfall of assets compared with the value of liabilities of £1,151 million, equivalent to a past service funding level of 70%. The next formal valuation of the Scheme will give an update on the financial position as at 30 September 2014. The results of this valuation will be available in Spring 2015. The financial assumptions underlying the valuation as at 30 September 2011 were as follows: Valuation Discount Rates:
% p.a.
Pre-Retirement Non Pensioner Post Retirement Pensioner Post Retirement Pensionable Earnings Growth Price Inflation
7.0% 4.2% 4.2% 2.5% per annum for three years, then 4.4% 2.9%
Pension Increases: Pre 88 GMP Post 88 GMP Excess Over GMP
0.0% 2.0% 2.4%
Expenses for death-in-service insurance, administration and Pension Protection Fund (PPF) levy are included in the contribution rate. Following consideration of the results of the actuarial valuation, the deficit contribution increased from 1st April 2014 to £0.69m per annum and will increase by an average of 4.2% per annum until 2020, when it is expected to be £0.88m per annum. The contribution in 2021 is expected to be £0.54m per annum and will increase by 4.2% per annum in both 2022 and 2023. The contribution in 2024 is expected to be £0.29m and will increase by 3% per annum in both 2025 and 2026, when contributions are scheduled to end. The Association also participates in the Cardiff and Vale of Glamorgan Local Government Pension Scheme, a defined benefit structure. For funding purposes, the Association’s costs have previously been pooled within a sub-section of small participating bodies of that scheme. Its contributions to the scheme include contributions in respect of just one active employee member as well as deficit contributions relating to past employees of that sub-section. It is not possible to identify the share of underlying assets and liabilities belonging to individual participating employers. Accordingly, due to the nature of the plan, the accounting charge for the period under FRS17 represents the employer contribution payable. The Association’s employer contribution rate was 22.7% of salary to 31 March 2014 and 20.6% of salary from 1 April 2014. In addition the Association made an annual contribution
Annual Report 2014
Page 46 of 48
Notes to the financial statements (continued) for the year ended 31 December
26
Pension schemes (continued)
towards the past service deficit of £83,500 to March 2014 and £101,600 from April 2014. The annual deficit contributions are currently expected to run until 2034, when they are scheduled to end, and are expected to increase from the current level by 3.4% per annum. The Financial Reporting Council issued a new reporting standard early in 2013 known as FRS 102. This is the Financial Reporting Standard (FRS) applicable in the UK (known as new UK GAAP). The mandatory effective date for the new framework of reporting is for financial years beginning on or after 1 January 2015. The standard directs that sponsoring employers should disclose the net present value of agreed deficit repayments on their balance sheets i.e. recognising the contingent liability. This presentation will be adopted in the accounts for the year ended 31 December 2015. The total pension cost of the Association for the defined benefit schemes was £1,349,262 (2013; £1,231,156). The Group also contributed to money purchase schemes. Contributions in the year totalled £117,021 (2013; £18,077).
27
Subsidiary Undertakings
The Association has three trading subsidiary undertakings, Cambria Maintenance Services Ltd (Registration No. 7389484), Enfys Developments Ltd (Registration No. 8292315) and Castell Ventures Ltd (Registration No. 8292028), in which it owns 100% of the issued share capital. During the year the Cambria turnover was £8,722,307 (2013; £7,395,365) of which £8,622,713 (2013; £7,326,118) was billed to the parent company in respect of reactive and planned maintenance services. At the year end, £343,039 (2013; £482,315) was outstanding. The Association has made a loan of £195,000 to provide working capital. This was outstanding at the year end, together with £818,778 due to the Association in respect of gift aid. During the year the Enfys turnover was £13,281,261 (2013; £25,112,172) of which £13,247,799 (2013; £25,112,172) was billed to the parent company in respect of construction management services carried out under design and build contracts. At the year end, £1,527,919 (2013; £1,122,594) was outstanding. The Association was due £136,359 in respect of gift aid at the year end. During the year the Castell turnover was £326,796 (2013; £41,117) of which £320,907 (2012; £41,117) was billed to the parent company in respect of catering services. At the year end, £702 (2013; £2,563) was outstanding. The Association was due £9,240 in respect of gift aid at the year end.
28
Related party transactions
The following members of the Board were also residents of the Association during the year: Mr D Davies Mr J Rides Mr J Williams Ms J Bere Mr B Schofield
Elected 26 April 2007 Elected 23 May 2013 Elected 30 April 2009 Elected 19 April 2014 Resigned 15 May 2014
The above Members were on standard Association resident agreement terms and they were forbidden from using their position on the Board to their personal advantage.
Annual Report 2014
Page 47 of 48
Notes to the financial statements (continued) for the year ended 31 December
28
Related party transactions (continued)
Two Members also held positions on the Board of Slocombe Cottages for the Aged and Infirm, which is a registered charity and a Registered Social Landlord. The Association provided management services for which it charged £6,101 (2013; £5,952). During the year there was one Board member on each of the Boards of the three Care and Repair agencies which have received donations from the Association after their demerger from the Association. The donations made during 2014 were as follows: Agency
Donation
Merthyr Care and Repair Agency Flintshire Care and Repair Agency Bridgend Care and Repair Agency
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£2,751 £3,813 £4,302
Member Mr D Davies Mr J Williams Mr I Gittens
Legislative provisions
The Association is incorporated under the Co-operative and Community Benefit Societies Act 2014. The Association adopted charitable rules with effect from 20 January 2005.
Annual Report 2014
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Cardiff Office (registered) 3 Alexandra Gate Unit Pengam Green Tremorfa Cardiff CF24 2UD Fax: 02920 415380
Tel: 0800 052 2526 Email: contactus@wwha.co.uk Website: www.wwha.co.uk @wwha
Flint Office 2 Acorn Business Park Aber Road Flint Flintshire CH6 5YN Fax: 01352 736340
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Wales & West Housing Association is registered as a charitable association under the Industrial and Provident Societies Act 1965 No. 21114R