Viridian Housing CO-OPERATIVE AND COMMUNITY BENEFIT SOCIETY: 12752R ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015

Transcription

1 Viridian Housing CO-OPERATIVE AND COMMUNITY BENEFIT SOCIETY: 12752R ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH

2 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS CONTENTS PAGE No: Report of the Board: 2 Board, executive directors and advisors 3 Group structure Operating and Financial Review: 4 Foreword 5 Operations review 8 Value for money 13 Financial review 18 Risk management 19 Risks and uncertainties Financial Statements and Notes: 20 Statement of the Board's responsibility in respect of the Report of the Board and the Financial Statements 21 The Group's system of internal control 23 Independent Auditor's report to the members of Viridian Housing 24 Income & expenditure accounts 25 Balance sheets 26 Consolidated cash flow statement 27 Accounting policies 32 Notes to the financial statements 1

3 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS BOARD, EXECUTIVE DIRECTORS AND ADVISORS Board: H Llewelyn-Davies (Chair) C Cheshire M J Lavers R Morton J Cox F Barras S Herelle P Roscrow M Fox (resigned 31 October 2014) Executive Directors: N Apetroaie (appointed Interim Chief Executive1 November 2014) M Campion I Bacon (appointed 19 January 2015) K Tromanhauser (appointed 19 March 2015) N Ackcral (appointed 19 March 2015) C Miller (appointed 19 March 2015) M Fox (resigned 31 October 2014) H Thomas (resigned 9 January 2015) S Forster (resigned 16 January 2015) Company Secretary: K Tromanhauser Principal Solicitors: Devonshires Bankers: Lloyds Bank PLC Registered Office: Colwell House 376 Clapham Road LONDON SW9 9AR Registrations: Co-operative and Community Benefit Society: 12752R Homes and Communities Agency: LH0172 Auditors: Baker Tilly UK Audit LLP Marlborough House Victoria Road South CHELMSFORD CM1 1LN 2

4 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS REPORT OF THE BOARD Group structure: Viridian Housing is the parent company of a number of subsidiary operating companies. More details of the Group members and their activities are disclosed in Note 14 to the Financial Statements. The Group parent and subsidiary companies are as follows: Company Viridian Housing: Viridian Facilities Management Limited: Middlesex First Limited: Viridian Property Investments Limited: Viridian Development Services Limited: Viridian Commercial Enterprises Limited: Activity The Group parent; the main operating and asset owning company providing strategic direction and ultimate control of its subsidiaries. Viridian Housing has charitable objectives and is registered with the Homes and Communities Agency as a registered provider of social housing. The company ceased trading on 30 June Activity was transferred to Viridian Housing from 1 July The company is now dormant. The company administers and manages student accommodation for the University of Middlesex. The company owned Viridian Housing s previous office in Hammersmith. The building was sold late in The company is now dormant. The company develops residential property and commercial property. The company provided short-term accommodation on a commercial basis. The company is now dormant. In addition, during the year, three new subsidiaries were incorporated in England and Wales. These have not traded since incorporation and are therefore dormant. They are Viridian Homes For All Limited, Viridian Homes Limited and Viridian Development Homes Limited. 3

5 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Foreword: Last year we stated that we expected to enter into a partnership with asra Housing Group during 2014/15. As a result of a governance and viability review of asra by the regulator, the Homes and Communities Agency, a decision was taken in February 2015 to put the partnership on indefinite hold. As a result of a subsequent notice of downgrading issued to asra by the HCA in April 2015, a decision was taken in May 2015 not to proceed with the partnership. Viridian remains a financially strong, well performing independent organisation, and our focus will be on delivering further improvements to our services, and developing more homes for our residents. These accounts contain the results for another successful year for Viridian. With an operating surplus of 31.8 million and a net surplus of 24.7 million, we have achieved an operating margin of 26% and a net margin of 20%. In spite of a challenging year, these results are substantially better than budget and an improvement on previous years, and represent real progress towards our medium-term target of achieving a 35% operating margin. These results are particularly encouraging as they demonstrate that the cancelled partnership with asra did not have a significant impact on our operating margin. These improving surplus levels are essential if we are to continue to deliver on our ambitious plans to build new homes, and improve our existing ones. The changes announced in the Conservative Government s Budget Statement in July 2015, in particular the 1% reduction in social housing rent for four years from 1 April 2016, mean that it is even more important that we maintain our surplus. Maximising our net surplus enables Viridian to maintain headroom against our banking covenants, and protects the organisation against risks which could impact on our long term financial plan. This enables the organisation to borrow new funds at lower rates of interest, and to continue to develop more new affordable homes. It also enables investment in improving services for our residents, and improving value for money. As a result of our significant reinvestment and development programmes, our net debt grew from million at the beginning of the year to million at the end of the year. Whilst we were able to comfortably absorb the costs incurred in preparation for forming a partnership with asra, we are aware of the need to increase investment in our IT systems over the coming years, to ensure Viridian remains a strong and high performing organisation. This year s results and a robust long term financial plan underpin the operational performance of the group, and enable the organisation to deliver its medium to long term plans. A new corporate strategy for , to be agreed by the Board in autumn 2015, will enable Viridian to maintain focus on five key areas: Customers and Services, People, Homes, Geography and Finance. Value for Money, continuous improvement and a robust approach to measuring customer satisfaction will be key strands within the new three year strategy. 4

6 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Housing management: The biggest strategic and operational challenge in 2014/15 continued to be Welfare Reform. The roll out of Universal Credit is expected to impact on the ability of some of our residents to pay their rent. Our income management performance continued to be effective, and arrears performance remains strong with our lowest ever end of year figure for the financial year achieved of 3.82% for General Needs. Peer audits by managers helped to keep the focus on arrears and identified any lessons learnt for housing officers. We are continuing to contact vulnerable people to ensure they understand the potential changes with the roll out of Universal Credit, the planned reduction in the benefit cap, and that they get the appropriate support. The Customer Service Centre achieved year to date satisfaction of 76%, which was a 1% reduction on last year. Staff retention in the team was affected by the uncertainty caused by the proposed partnership with asra, but the team was fully staffed by the end of the year. The volume of calls dropped by 29,000 compared with the previous year, as callers used alternative access channels such as , and we improved the number of calls resolved first time. 76% of calls were resolved first time, for the year as a whole, which exceeded the target of 75%. Our Anti-Social Behaviour (ASB) team had another successful year in dealing with difficult anti-social behaviour cases, and Viridian reached the finals of the UKHA Awards 2015 (Keeping Communities Safe category) for its commitment and cross departmental work over several years on tackling noise. For the financial year 2014/15 the Legal team continued to combat tenancy fraud within our housing stock, recovering 41 properties as a result of their actions on tenancy fraud. Last year 47 households received intensive support from our Domestic Abuse Project Officer (who is an experienced Independent Domestic Violence Advocate). This meant that, as well as receiving intensive emotional support, each resident also received advice and support on legal action against perpetrators, rehousing, welfare benefits and other tenancy support. Referrals were made to a range of specialist external agencies according to need. This represents a significantly enhanced response to ensure the safety of our residents experiencing domestic abuse. We have continued with the project to review Estate Services Standards, which will deliver more consistent services to our residents. Commercial operations: 2014/15 continued to be a very successful year for Commercial Operations delivering a higher surplus than budget. We saw high occupancy levels at our key worker schemes. There was also high occupancy at the three central London hostels. Viridian s student portfolio also performed well, with much improved levels of occupancy at Wood Green. Robbins Hall closed on 1 April 2015 and we will be redeveloping the site into affordable rent and shared ownership homes. Where possible we have followed a green agenda and recycled equipment across the business. In addition, we have been able to deliver social impact to local communities by partnering with charities including Newham Asian Women's Aid, Kith & Kids and the British Heart Foundation to provide furniture, household utensils and bedding to the dispossessed, homeless, disabled and victims of domestic abuse. These charities were really excited by the opportunity Viridian gave them to make a significant difference in the lives of the groups they serve. Regular monthly meetings have been set up with the NHS Trust for the Chertsey keyworker site to progress the plans for the development of 158 new bed spaces, a new office and the refurbishment of 366 existing bed spaces, and the extension of the lease term. Care: Although talks with a potential purchaser proceeded to an advanced stage we were unable to reach a final agreement to dispose of the Ealing Care PFI contract. We have decided not to seek to dispose of this part of our business for at least the next three years, in order to give reassurance to colleagues, who have had to deal with continued uncertainty in this part of the organisation. The emphasis is now on business as usual operations, and the Ealing Care Alliance (ECA) and our lenders are supportive of our continued commitment to this area of our business. A service development plan is being developed to take us forward for the next three years. Retirement housing: Our retirement housing services continue to provide good quality accommodation and support for older people. In response to the wishes of our customers we have continued to provide scheme manager services, with locally based staff at each of our retirement schemes. Services continue to perform well and void levels have continued to improve across the whole of our stock. Key service drivers of voids and arrears are showing good performance as a result of the improvements that we have been able to make to the lettings of our retirement housing properties over the last two years Our award winning development at Halton Court, Kidbrooke Village in the Royal Borough of Greenwich, continues to be a flagship scheme for us as a provider of specialist housing for older people. We opened a further retirement housing scheme, Parkside in Cheam during 2014/15, which has been very popular. Bentham House, at Royal Arsenal in Woolwich, will open in the summer of

7 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Supported housing: Following the decision taken in 2013/14 to exit from supported housing, a number of services were transferred to other providers or closed. The closure of some services has resulted in some high value property disposals, which supports our development programme. We also transferred our Deaf/mental health care services to Action on Hearing Loss at the end of June In a number of cases we have agreed to extend our provision of supported housing services for a limited period, where this assists the local authority and supports our ongoing relationship with them. Social impact: We have used live in guardians to provide security for our empty buildings while, at the same time, providing short term housing for people who are willing to live in temporary accommodation. There are a number of organisations that provide live in guardian services and we have not worked exclusively with a single provider. These schemes work through the provider renting an empty building from us, usually for a minimum period of 3 months. They will then house people in the building for a low rent in exchange for their tenants providing some basic security services and giving the building a lived in appearance. This arrangement has been used variously by the Social Impact, Housing and Development Teams and has the benefits of reducing void loss, security costs and achieving some affordable housing out of an empty building. Our social impact services achieved considerable success in 2014/15. This includes: The development of the Move Maker app, which is expected to be launched in the summer of The Research & Innovation Team won a competition which was organised by Nesta, who were looking for new products or services that would bring the benefits of open data to social housing tenants. Development funding of 40,000 was awarded. This app is designed to help match residents across the sector looking to swap homes with others, which will facilitate providing appropriate housing to people who either need a larger home, due to family needs, or are looking to down-size to reduce their rent, or to minimise the impact of the Bedroom Tax. The app will enable users to identify potential properties to swap with their existing home. The work of our Financial Inclusion Team generated an additional annualised equivalent of 2 million of housing benefits for our customers, most of which directly reduced tenants rent arrears. The Financial Inclusion Team has continued to adopt an affordability assessment which is used with new customers, which creates benefits for customers on low incomes through helping them to avoid falling into arrears, and creates benefits for Viridian in that it re-focuses our work on arrears prevention rather than collection. The team continues to work with Housing and other areas of the business in preparation for Welfare Reform, and the wider roll out of Universal Credit, and have recently presented their work to the Executive Team and the Leadership Team. We are currently working with a large number of volunteers, with some volunteers being placed in other teams within the organisation. This has been positive engaging with significant numbers of our customers who are getting close to either finding employment, or being work ready. Colleagues in Social Impact working on volunteering and employment programmes will be looking at our offer to customers, with a view to refining our services and ensuring that we are achieving and measuring employment outcomes. We intend to increase the focus of our work on those customers who are close to being job ready. Support for those who are not close to being job ready may be better provided by other specialist providers. We are committed to measuring the benefits of our social impact services, both in terms of the increase in wellbeing created for our customers, and for the financial benefits that can be created. We worked with HACT to implement measures and reported on the outcomes in our Social Impact Report, which we published during 2014/15. This showed that for every 1 that we spent, this created 2 of social value. For every 1 spent on financial inclusion, this created over 4 of financial benefits for our residents. Property and development: Viridian Housing has an in-house property services and repairs team, with the vast majority of our responsive repairs delivered by our own staff. During the year we carried out 34,994 responsive repair requests with 98.4% of emergency jobs and 93.4% of routine repairs delivered on time. Our first time fix rate for repairs was 92.5%. Our average customer satisfaction rate for repairs was 82%, which was below our target of 90%. The service was impacted by a shortage of operatives in January and February 2015, but satisfaction was improving again towards the end of the year. We serviced 7,744 gas boilers, achieving 99.9% compliance on servicing, and replaced 511 with high efficiency condensing boilers. Our audit compliance on major safety issues was 97%. We invested 12 million (2013/14: 12.4 million) in planned maintenance of which 6.2 million (2013/14: 8.4 million) was capitalised, in accordance with our stock condition survey. We carried out works to 664 (686 in 2013/14) void properties with the average turnaround (works) of 11.9 days (11.2 days in 2013/14). Performance in London was impacted by a number of homes requiring a higher level of repair than usual, but despite these challenges, average spend of 1,892 ( 2,166 in 2013/14) per unit was below our target of 2,000. The planned maintenance programme included the replacement of a total of 1,633 components, made up: 549 kitchens, 653 bathrooms and wet rooms, 99 electrical upgrades, and 332 homes received new windows. The programme was substantially completed on time and below budget. 6

8 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Property and development (continued): Satisfaction with the component replacement work was 98% (98% in 2013/14) for the year, with 100% achieved for individual months on 4 occasions. In terms of compliance, we invested 224,000 completing 1,169 asbestos surveys, which highlighted 50 cases where we had to carry out remediation work. Unfortunately we were unable to gain access to 304 homes to carry out asbestos surveys, and so we will be furthering attempts to gain access in 2015/16. A further 237,000 was invested in fire risk assessment works across 157 properties. As at 31 March 2015, 99.79% of our homes were compliant in terms of gas certificates. We also carried out reinvestment work in Viridian s commercial stock, which included two significant boiler installations which were underway at the end of the financial year at our student accommodation in Wood Green, and at our hostel, Helen Graham House. A total of five lift installation upgrades were programmed last year, all of which are now operational. The Planned Maintenance Team completed 232 minor adaptations and 63 major adaptations, achieving 99% satisfaction. 318,000 was spent on these adaptations. 2,616 stock condition surveys were completed during the year, compared with our target of 2,088 to meet our asset management objectives. Our shared ownership and commercial sites have separate five year stock condition survey programmes. Implementation of a live reporting tool to improve Active Asset Management commenced during the year and completed by the end of June This system will produce reports which will enable us to analyse and maximise the performance of our assets. During the year we identified and sold six poorly performing assets, providing a surplus of 3.43 million which exceeded our disposal target by 1.43 million. As for development, we invested 43.8 million (2013/14: 95.6 million) and completed 298 (2013/14: 205) new homes during the 2014/15 financial year. Our active development programme as at 31 March 2015 was 757 units, with total scheme costs of just under 160 million. We will deliver over 307 new homes in 2015/16. We sold 62 Shared Ownership homes generating 7.7 million (2013/14: 5.3m) of sales receipts and we expect to sell 110 homes in 2015/16 which will generate a further 14.9 million of receipts. We also achieved 57 staircasing completions generating a surplus of 2.8 million and 62 resales. Overall 96% of customers were satisfied with their new home against a minimum target of 95%. The Affordable Homes Programme was completed before the deadline of 31 March A further scheme, the Tooting Extra Care scheme, was delayed due to difficulties connecting utilities, but the GLA provided a waiver to reflect the circumstances. We won the award for best Housing Alliance at the First Time Buyer awards in conjunction with Berkeley Homes. This reflected the excellent partnership work we have done with Berkeley Homes at the Kidbrooke regeneration scheme. An initial review of defects was undertaken in the last 12 months. We have an average of 1.76 defects per property and are in the process of establishing a KPI based on sector benchmarking to monitor this going forward. The initial monitoring period, following the remediation works carried out at the former Johnsons site in Bootle, is nearing completion. We exchanged contracts towards the end of the financial year with a purchaser who has made a conditional offer to purchase the site for future re-development. 7

9 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Environmental matters: We undertook a detailed energy analysis of our stock (excluding Commercial operations) which was completed as planned in April The average energy rating using the Standard Assessment Procedure (SAP) was 66. This average is comparable to most other housing associations. We have drafted a retrofit implementation plan and an environmental plan. These two plans will be supported by our new Property and Development Strategy. These documents are currently being reviewed by the Executive Team and will be presented to Board in the second quarter of 2015/16. A total of 511 domestic boiler installations were carried out in the year. The majority were planned upgrades targeting open flue, 15 year plus and low efficiency boilers, replacing them with much more efficient condensing boilers. Value for money: Viridian has continued to focus on improving our financial position, and we have implemented many changes over the years in the ways that we work in order to do this, e.g. carrying out a formal quarterly forecast and adopting a risk-based approach to our reporting. We believe that value for money is more than just how much we spend. It is about where and how we spend our money, and what we get back in return. It is also about ensuring that we can provide the highest possible standards of service to our customers, whilst making sure that we are open and transparent in everything that we do. The year to 31 March 2015 has been another financially strong year for Viridian. We ended the year with a group operating surplus of 31.8 million (26% operating margin) and a net surplus after interest and asset sales of 24.7 million (20% net margin). We feel that our value for money focus can be seen by the growth in our operating surplus per unit. 2,200 Group Operating Surplus Per Unit 2,000 1,800 1,600 1,400 1,200 1, Over the last 5 years, our operating surplus per unit has more than doubled, from 997 in 2010/11 to 2,024 in 2014/15. These surpluses are a result of tight financial management and controls, a proactive approach to risk management, and a constant focus on value for money to ensure that the quality of our service is not adversely affected as a result of spending less in some areas. 8

10 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Value for money (continued): Partnership with asra: Our focus in 2014/15 had been preparing for the planned partnership with the asra Housing Group. The partnership would have delivered improved value for money through efficiency savings, which would have been enabled by migrating to asra s core IT systems, and achieving economies of scale. A great deal of time and resources were dedicated to making this happen. In February 2015, the partnership was put on indefinite hold and then in May, the Viridian Board decided not to proceed. The Board were clear; we will build on the work we had carried out whilst preparing for partnership, and will assess our business to ensure that any elements that could improve the way we work will be taken forward for the benefit of Viridian s customers. We are designing a three year programme of business improvement projects to include learning from the partnership, and take forward specific elements of the Target Operating Model, including implementing the geographic based area model of service delivery, and improved IT provision. We will also be enhancing our digital offer and developing our approach to outsourcing. The programme costs and recurrent savings (from economies of scale and process improvement) referred to in the 2014/15 Value for Money Statement around entering into partnership with asra housing are no longer relevant, due to the cessation of the partnership. Viridian is accordingly now refreshing its Corporate Strategy for the next 3 years, which will include a change roadmap for Viridian, building on the work done previously for our Target Operating Model and the partnership. This roadmap will prioritise actions around mitigating risk, improving operational efficiency and improving customer experience. The roadmap will develop a fully costed business case which will detail the costs of the change programme and the recurrent annual benefits (both financial and non financial) that will accrue. Most of the savings will be driven by investments in IT, so are unlikely to accrue significantly until 2016/17. Viridian will also consider further merger opportunities, which will be assessed against clear criteria which have been developed by the Board. How we ensure we deliver Value for Money: The Viridian Board has ultimate ownership of Value for Money in the business, but it is strongly embedded amidst the teams and our involved residents. The Board approved both our Corporate Strategy and Value for Money Strategy and insists all papers submitted for consideration must demonstrate a clear Value for Money impact. Each year the Board approves the budget. Reporting to the Board are four committees each giving a different reassurance in terms of spend and Value for Money. These are explained in the section on the Group s system of internal control on pages 21 to 22. Resident engagement: Our residents are fully informed and contribute to our Value for Money work in ways to suit them. Before launching our 2012 Value for Money Strategy, we consulted with our then National Residents Forum to obtain their input regarding our Value for Money plans in different service areas. Since then, we have established a new resident scrutiny function; the Resident Scrutiny Board. Reporting into the Resident Scrutiny Board is a group of Resident Auditors. They carry out audits on Viridian s services as directed by the Resident Scrutiny Board. Viridian knows residents can make a huge impact on influencing and improving services. Supporting residents to become involved and give their views is crucial to the success of resident engagement at Viridian. Through resident involvement, we have reviewed our service standards, identified areas for improvement and used feedback to help shape policy and procedure. Through consultation with the former National Residents Forum, we formed the new resident involvement framework. This consists of a number of resident groups that work towards improving Viridian services. Complaints: We have a two stage complaint resolution process, developed with residents. This approach has seen us reduce significantly the number and cost of complaints made. Prior to the introduction of our new process in the 2010/11 financial year, 13 complaints were progressed to stage two costing approximately 1,000 each time. Since the Customer Liaison Team was set up in 2011, the number of complaints has significantly reduced, with only six complaints having been reviewed since its creation. In addition to reducing the number and costs of complaints, we have also been commended by the Housing Ombudsman on our complaints process which includes residents being able to raise issues directly with the Resident Scrutiny Board. Despite a small decrease in customer satisfaction in this area since last year, we have remained above our internal target of 90% for the past 2 years. Corporate Key Performance Indicators: Our corporate Key Performance Indicators are designed using balanced scorecard principles. We monitor the service delivery against all the commitments in our Corporate Strategy. We align our Key Performance Indicators with our staff objectives to create a golden thread though the organisation. In addition to measuring our core financial performance, our Key Performance Indicators measure three core areas of our activity: Customer Satisfaction, Rent Collection / Arrears and Service Level Commitments. We have recently joined HouseMark. This will give us access to benchmarking data, which will enable us to identify areas where we can further improve value for money. The first results will be obtained in 2015/16. 9

11 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Value for money (continued): Staff Commitment to Value for Money: We introduce Value for Money to new colleagues as soon as they join Viridian. Our Corporate Induction programme for new starters explains our key Value for Money principles, particularly those contained within our Corporate Strategy. New colleagues sign our Code of Conduct as soon as they join. This sets out how they are expected to demonstrate Value for Money and comply with Viridian s Financial Regulations, budgetary setting procedures and other relevant policies, including the Expenses Policy and Credit Card Charge Policy. Links to strategy: Our current Corporate Strategy, which we are currently reviewing, runs from 2012 to One of the eight organisational goals is our financial commitment to increase efficiency, and we have therefore made Value for Money part of the way that we do things. As such, we wrote our Value for Money Strategy. Within this strategy we have addressed each of the eight themes of our corporate strategy, in addition to which we assessed the impact upon our Value for Money work from our Target Operating Model and the possibility of a partnership with another organisation. Procurement: A new e-procurement system was implemented during 2014/15, and will bring significant benefits in procuring goods and services, and in contract management. The percentage of our spend under contract is expected to increase once the Estate Services Project has been completed, and further steps are taken to consolidate our purchasing to a smaller number of key suppliers. The number of active suppliers remains at 1,200, which we expect to reduce further during 2015/16. We will be implementing an improved approach to Procurement during 2015/16, with the introduction of category management and the development of category strategies, which will deliver significant procurement savings and improved value for money. Category management is a strategic approach to procurement, which organises resources to focus on specific operational areas. Additionally, the procurement team will become subject matter experts, with a greater, in-depth knowledge of the characteristics of a similar range of products and services. Procurement experts manage an end to end contract process, incorporating market research, price benchmarking, tendering, contract and supplier management. This way of working identifies opportunities to reduce waste, improve efficiency and ensure our contracted providers undertake continuous improvement throughout the life of their contract with us. We have a clearly defined approval process for new contracts. All orders placed for goods and/or services between 10,000 and 50,000 must be authorised by the Corporate Procurement Manager. The Procurement Panel reviews all procurement project proposals with a total contract value of between 50,000 and 500,000 exc. VAT. The terms of reference are currently under review, including finalising panel membership. Currently, it is chaired by the Procurement Manager and includes various Heads of Services, the Group Management Accountant and Procurement Business Partners. The New Business & Contracts Panel (NBCP) reviews any planned expenditure of between 500,000 to 1 million. The New Business and Contracts Panel members include the Chief Executive and two Executive Directors, as well as other senior managers within the business. All plans for expenditure are required to fit with Viridian s Corporate Strategy, demonstrate affordability and meet design and quality specifications. All business cases are assessed accordingly. For proposed spend greater than 1million business cases are considered by Growth and Investment Committee Expenditure limits Required approval 10,000 to 50,000 Corporate Procurement Manager 50,000 to 500,000 Procurement Panel 500,000 to 1,000,000 New Business and Contracts Panel 1,000,000 and over Dependent on nature of contract, Growth and Investment Committee Transparency: As an organisation we want our approach to day-to-day work to be as open as possible. We really feel it is important to be transparent to our customers about how we spend our money. To that end we have created a transparency section on our website, on which we publish details of our expenditure on a monthly basis. Some of the information we publish includes: Details of all payments in excess of 500 (we publish expenditure type, supplier name & amount of payment and have been doing so since 2012). The total payments to our Board members, Chief Executive and Executive Directors. Our internal structure chart, strategy and regulatory information. 10

12 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Value for money (continued): How we manage our resources: Financial Planning & Management: Viridian monitors financial performance according to an annual cycle. The key tools and stages of this are: Long Term Financial Plan We use a long term financial plan to model and plan our financial position 30 years into the future. We use this valuable financial tool when considering all long term investment decisions; it allows us to respond quickly to changes in our environment and amend our strategy and structure as necessary. We continually monitor and model the impact of Welfare Reform on our income and test the pros and cons of different development strategies. We also model the impact of various alternative scenarios to stress test our long term financial plan. We update the long term financial plan at the start of the year to take account of new information. This includes the results from the previous financial year, and underlying assumptions are checked and challenged. This allows for effective and efficient treasury decisions. Budget We use the agreed plan to provide targets for the annual budget setting process. The budget forms the backbone of expenditure control and income maximisation for the year. It is a collaborative effort, built by all managers across the organisation. It is checked and challenged by our Finance team and approved by the Executive Team and then Strategic Board. We introduced an improved process for budget setting during 2014/15, which ensured that the budget was in line with the targets set, reducing the number of iterations required to achieve an acceptable budget. In 2015/16 we have set ourselves a target to achieve a 23.6% operating margin, and a net surplus after interest and asset disposals of 22.6 million for the Group. Management Accounts Once the budget has been approved, progress is measured through our management accounts. These are prepared by the Finance Team and sent to all Directors and Heads of Service. Performance is reported monthly to the Executive Team and to each Board meeting. In , we had set a budget for the Group for the year to achieve a net surplus of 12.8 million, which we exceeded by 11.9 million and ended the year with a net surplus of 24.7 million. This was achieved by cost savings and by higher than budgeted proceeds from the sale of new and existing properties. Forecasting We re-forecast our financial position every three months so that we can plan ahead and take action where necessary to achieve our targets for the year. The introduction of a formal quarterly forecast in 2013/14 enabled the organisation to forecast more accurately and allowed greater financial manoeuvrability during the year. Further process improvements were introduced during 2014/15, which improved our ability to forecast the end of year position. This enabled the Executive Team and Board to make robust strategic decisions. Financial Information Team Our Financial Information Team follows a business partnering approach, which essentially means that it works more efficiently with operational colleagues and is kept well informed of any planned business changes. We were last audited in February 2013 on our budgetary control and found to have adequate financial controls in place. A number of significant improvements have been made to budgetary controls since this audit was completed. Return on our assets: As mentioned previously we are implementing a live reporting tool to improve active asset management. The initial results will be reported in our Value for Money self assessment statement, which will be published in September Development Programme: The Viridian Corporate Strategy sets out our aim to focus on improving the lives of our residents and using our financial strength to do as much good as we can. Building new homes is a fundamental way that we can deliver the Social Impact at the core of our purpose to change lives. We want to develop a range of new housing products to meet the needs of our most disadvantaged customers (those who pay social rent or are retired) and customers who will struggle to fine good affordable housing (those paying intermediate rent or buying through shared ownership). We will also consider the development of market housing where it facilitates the development of new housing for our core customers. We also want to achieve a minimum of 95% customer satisfaction from our new homes survey, taking into account customers views to help us continually improve our specification. 11

13 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Operations review: Value for money (continued): Costs and outcomes of delivering services: Focus on Core Business In 2014/15 we made progress with our plan to exit from Supported Housing. This has been through a mixture of closures and transferring services to specialist providers. In some cases we have sold the properties and capital funds will be reinvested in new developments. We will exit from all supported housing by 31 March 2016 but we will continue to work with third party providers operating services in our properties. Property Services: Component Replacements We use labour only sub-contractors to deliver this work, and we purchase and provide the materials required and arrange for them to be delivered directly to site. The contractor supplies the labour and carries out the work on a fixed price basis; enabling us to keep a tight control on cost. Delivering the work in this way allows us to produce accurate cost reports split into labour, materials and any sub-contractors so we can target where efficiencies can be made. Repairs & Maintenance Service As part of our Target Operating Model project in 2012/13, we benchmarked the costs of our responsive repairs service and found ourselves to be relatively expensive. We committed to reduce the costs of our core in-house maintenance service to 402 per property in 2016/17. This would be upper quartile of peer performance. For 2015/16 Viridian has focussed on investing in resources in order to improve satisfaction to 88% by the end of 2015/16, therefore we are anticipating an increase in cost to 462 per property. Our challenge in subsequent years will be to reduce our cost per property, whilst maintaining the quality and delivery of our service. We will re-tender our three main day to day contractor disciplines (drainage, pest control and roofing) to achieve this, as well as using new lead technical roles to challenge material spend. Value for Money for our customers: Within our Property Services department, we employ an Energy Advisor who provides free energy saving advice to our customers. The Energy Advisor attends customer events, visits customers in their homes and gives tailored energy saving advice. If the customer follows the advice they can save on average 130 a year on their fuel bills. In the Energy Advisor helped 124 customers, saving a potential 16,120. A particular highlight was helping a resident to save 400 a year by transferring from prepayment meters and switching energy supplier. In order to expand this successful service we recruited two Energy Advisor Apprentices in March The Energy Advisor also creates Value for Money internally. In addition to working with our customers, we train our colleagues so they too can give energy saving advice. Before the Energy Advisor position was created we were paying external consultants around 1,300 per training session, whereas now it is free and designed specifically for our colleagues. This is just a sample of some of the work we have done in the year which demonstrates our commitment to providing value for money. We published a comprehensive Value for Money self assessment on our website ( on 30 September 2014 and a new statement will be published by 30 September The information on our website is not subject to audit and does not form a part of the financial statements. 12

14 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Financial review: Financial performance was strong this year generating a group surplus of 24.7 million (2014: 16.9 million) on a turnover of million (2014: million). The surplus generated is fully reinvested in furthering Viridian Housing s social and charitable objectives. Summary financial results: The table below provides an outline of the Group s results for the last five years: 2014/ / / / /11 million million million million million Turnover Operating surplus Operating surplus %age 26.2% 24.7% 20.1% 18.4% 14.7% Interest & similar charges (net) Interest as a %age of turnover 10.2% 10.5% 11.1% 11.2% 16.0% Surplus/(deficit) on sale of properties (3.2) (0.3) 4.2 Surplus as a %age of turnover 4.3% 1.0% (2.9%) (0.2%) 3.9% Surplus for year Surplus as a %age of turnover 20.3% 15.2% 6.3% 6.9% 2.6% Analysis of Group turnover and operating surplus by year: Group turnover and operating surplus million Turnover Operating surplus (20.0) 2010/ / / / /15 Surplus/(deficit) on sale of properties 13

15 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Financial review: Turnover by activity (Social Housing only): 2014/ /14 000s % 000s % General needs housing 71, % 66, % Supporting people contract income % 1, % Residential care homes (5) (0.0%) % Key worker accommodation 6, % 6, % Ealing care homes 9, % 9, % Temporary housing % % Shared ownership 3, % 3, % Other 2, % 2, % Total 94, % 90, % Expenditure by activity (Social Housing only): 2014/ /14 000s % 000s % General needs housing 45, % 42, % Supporting people contract income 1, % 2, % Residential care homes % % Key worker accommodation 5, % 5, % Ealing care homes 10, % 11, % Temporary housing % % Shared ownership 1, % 1, % Other 2, % 1, % Total 68, % 65, % Operating surplus/(deficit) (Social Housing only): 2014/ /14 000s % 000s % General needs housing 26, % 23, % Supporting people contract income (366) (1.4%) (661) (2.7%) Residential care homes (367) (1.4%) (6) (0.0%) Key worker accommodation 1, % 1, % Ealing care homes (1,585) (6.0%) (1,421) (5.7%) Temporary housing (268) (1.0%) (22) (0.1%) Shared ownership 2, % 1, % Other (283) (1.1%) % Total 26, % 24, % Non social housing turnover was 14.5 million (2014: 13.3 million) generating an operating surplus of 1.6 million (2014: 1.7 million). 14

16 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS Financial review: Balance sheet: The table below summarises the Group s balance sheet for the last five years: As at 31 March 2014/ / / / /11 million million million million million Tangible fixed assets net of grant Net current assets Total assets less current liabilities Creditors due in over one year Reserves The Group s balance sheet is very stable. Operating surplus and interest cover: Operating surplus and Interest Cover Financial years ended 31 March m % Interest cover % % % Operating surplus 20.0 Interest cover 150.0% % % / / / / /15 Year 0.0% 15

17 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Financial review: Capital structure and treasury policy: The Group has established a Treasury Committee which reports directly to the Board. The Group s Treasury Management Policy and Strategy are reviewed annually by the Treasury Committee before they are recommended to the Board for approval. All treasury activities, including the management of Viridian capital, loan compliance and intra-group loans, are monitored by this Committee. The Group is largely funded by loans from third parties. The Viridian capital includes (i) called up share capital, (ii) general reserves and (iii) restricted reserves. The objectives for managing the capital are therefore set by the Treasury Management Policy which includes KPIs to measure performance. Financing: At 31 March 2015, the Group had total credit facilities of million (2014: million) of which million had been drawn down. A revaluation of certain loans arising from historic acquisitions along with capital repayment required on certain interest rate swaps lifts the reported debt to million as shown below. Of the available credit facilities 93.5 million remains undrawn, including a 2.0 million overdraft. The Group s funding sources are 12% from Capital Markets and 88% from Banks. Loan structure: The maturity dates of loan facilities are arranged to ensure large proportions of debt do not mature during the same year. The table below presents the loan repayment profile: 2014/ /14 Loan repayment profile million million Due within 1 year Due between 1 & 2 years Due between 2 & 5 years Due after more than 5 years Interest rate risk management: Group exposure to fluctuations in interest rates is managed through the Treasury Management Policy. The Group s current strategy to mitigate the risk of interest rate movements is to use a combination of stand-alone and embedded instruments to hedge against adverse movement in interest rates. As at 31 March 2015, 15% of the Group s debt was fixed and a further 45% of the Group s debt had been hedged using financial derivatives with various counterparties over periods ranging up to thirty years. At the start of the year some of the interest rate swaps held by the Group to manage the exposure to fluctuations in interest rates included options which gave the bank the right to unilaterally cancel the swap. As this is something the bank would be motivated to do in a high interest rate environment these options reduced the value of these instruments to the Group as a hedge against rising interest rates. During the year the Group therefore invested 1.7 million to remove these rights while effectively keeping all other terms of the swaps unchanged. This cost is included in Interest Payable and Similar Charges as shown in Note 7. Some of the interest rate swaps are embedded into the underlying loan while others are subject to independent ISDA agreements with the banks. Where a swap is subject to an ISDA agreement the bank can, under certain circumstances, demand collateral from Viridian to act as security. This collateral can be provided as cash or as property. At the end of the financial year to 31 March 2015 there was no cash pledged to a bank under an ISDA agreement and all collateral was covered by property. Swaps that are embedded into a loan are not subject to a possible collateral demand. The net effective interest rate on all our borrowings at 31 March 2015 was 3.4% (2014: 3.5%). Liquidity: The Group has sufficient facilities available to meet committed expenditure beyond March At 31 March 2015, the Group held cash and short term investments of 32.2 million, there was an unutilised overdraft facility of 2 million, and further undrawn secured credit facilities of 91.5 million. Cash flow: The consolidated cash flow statement is presented on page 26. The Group achieved a net cash inflow from operating activities of 37.3 million (2014: 32.1 million). Interest paid was 14.9 million (2014: 12.9 million). Group debt increased by 15.9 million (2014: 31 million). 16

18 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Financial review: Key financial and operational performance ratios: Other key financial and operating ratios were as follows: 2014/ / / /12 Actual Actual Actual Actual Interest cover 273.7% 212.1% 199.1% 159.8% Aggregate interest rate 3.4% 3.5% 3.9% 3.8% Gearing - lenders' covenant method 34.3% 33.3% 34.6% 35.8% Units in ownership 15,220 15,260 15,485 15,294 Current tenant arrears - general needs 4.2% 3.9% 5.4% 5.6% Void rent loss - general needs 1.3% 1.8% 1.4% 0.5% Void rent loss - retirement housing 1.6% 5.5% 2.1% 2.1% Relet time in days - general needs (minor voids) Relet time in days - general needs (all voids) Routine repairs completed on target 93.3% 95.5% 93.6% 94.2% Emergency repairs completed on target 98.1% 98.1% 97.1% 97.0% Homes meeting the decent homes standard 97.0% 97.3% 92.8% 98.8% Customers satisfied with the repairs service 82.0% 81.0% 80.2% 79.0% Customers satisfied with customer services 76.0% 77.0% 79.9% 78.0% Customers satisfied with complaints handling 91.0% 92.0% 96.5% 89.0% Antisocial behaviour - weeks to resolution Viridian complied with all loan covenants with considerable headroom, all calculations being based on the most testing lenders covenant method. Interest rate cover covenants range from 90% to 110% and the Group achieved 273.7%. Gearing covenants range from 55% to 65% and the Group achieved 34.3%. 17

19 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Risk management: The Board is committed to ensuring that the long-term financial health of Viridian Housing and its subsidiaries is maintained through an effective risk management framework. Strategic decisions are taken in the context of the risk exposure arising from new activities and the resources in place to manage this. The Risk and Audit Committee has delegated authority for monitoring risk management from the Board. The risk management framework devolves the detailed assessment of operational risks to relevant subject matter experts to ensure accurate appraisal of risks in the context of the operating environment, and a strong linkage for each risk to our corporate strategy. The approach, as defined in the Risk Management Policy and Procedure, has allowed Viridian to promote a culture of risk awareness. This has occurred through increased risk discussions at senior management team meetings which are cascaded down the organisation. This has continued to create greater opportunities for risk identification and collaboration when considering individual risks. This activity is also supported and overseen through a formal Risk Panel. The Risk Panel includes representatives from key and high risk areas of the business that collectively scrutinise the corporate risk map, provide challenge when risk scores do not reflect the impact and probability for the risk, or when mitigation controls are not adequately managing the level of risk, or are not implemented as rapidly as required. The level of risk emerging from any fraudulent activity, or identified through internal audit or any other sources is also discussed by the Panel. The risk map is reviewed by the Risk Panel and the Risk and Audit Committee quarterly. The full Executive Team attends the Risk Panel every six months to enable proactive risk discussions which benefit from their combined expertise. The Board reviews key risks affecting Viridian at each of their meetings. The Governance team is responsible for overseeing the maintenance of the risk map, collating quarterly risk updates from risk owners and risk reporting. The risk management framework has continued to evolve to enable continuous improvement. This has included identifying key performance indicators to provide a measure of risk mitigation completed and proposed by quarter, for all risks and/or sources of assurance to ensure effective risk monitoring and mitigation is in place. Further work has also been undertaken to prioritise risk actions. This established which actions enable the greatest risk mitigation, to allow for better concentration of resources. An internal audit of the risk management function was conducted by Mazars in February 2014 and this was awarded a substantial assurance grading. In May 2014 a departing employee reported concerns regarding fire safety. The individual alleged that recommendations arising from fire risk assessments might have been closed down inappropriately. Following an initial investigation a complete audit of all 191 high risk properties was arranged, along with a separate HR investigation. The audit was carried out by Fire Comply (a fire safety consultancy) between September and November 2014 to assess the level of non-compliance, and ensure that all outstanding actions were addressed appropriately. An action plan was created and a Rapid Action Team was established to oversee this work. The Fire Comply audit confirmed that 84% of the fire safety actions reviewed had been correctly closed. The remaining 237 individual actions were re-opened, with 15 of these being considered high risk. These re-opened actions were regularly reviewed by the Rapid Action Team to ensure that they were addressed appropriately and in a timely manner. The HR investigation concluded that no disciplinary proceedings should be taken, but opportunities were identified for improving a number of procedures and carrying out additional training for staff. Regular updates have been provided to the Risk and Audit Committee and the Board. The Board have agreed that a overarching review of health and safety management is appropriate, and this will be undertaken within the 2015/16 financial year, supported by an enhanced internal audit programme. Grant Thornton carried out a follow up audit in January 2015, to review progress against the four outstanding recommendations in respect of Internal Controls in maintenance (Financial Regulations) and Procurement. This was following the whistleblowing report first reported in the Operating and Financial Review for 2012/13. Grant Thornton confirmed that all of the remaining four recommendations had been completed, and noted a significant improvement in colleagues raising purchase orders prior to receiving goods and services. We are now achieving 70% compliance and will be rolling out purchase ordering to PFI Care, following the decision not to dispose of that part of the organisation. Following the decision taken in February 2015 initially to put the proposed partnership with asra on indefinite hold, a separate risk map was created to manage the risks arising. These specific risks were managed as arrangements were made to de-couple the two organisations, pending the final decision on the future of the proposed partnership, which was made in May This was used effectively by the Executive Team to manage the key risks to enable the organisation to refocus on business as usual for Viridian. 18

20 VIRIDIAN HOUSING REPORT OF THE BOARD AND FINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW Risks and uncertainties: Viridian has a proactive approach to capturing emerging risks and to mitigate the effect of those risks as much as is practicable. The following table lists the most significant risks together with the controls in place to manage them as at the end of 31 March 2015: Risk: Reduced morale resulting from the partnership and its indefinite postponement may impact on the delivery of business as usual activity and lead to loss of key staff. Staff retention. The market for housing staff is increasingly competitive and there is difficulty in attracting, recruiting and retaining individuals. This loss of knowledge, skills and corporate history adversely impacts on business as usual activities and results in a greater reliance on agency staff. A dependency on interim staff is costly, and has led to a lack of continued expertise and some skill gaps across Viridian. Welfare reform and the introduction of universal credit will result in unsustainable tenancies, increased evictions, tenant arrears and significant financial loss. Non compliance with health and safety requirements may result in injury, damage to assets and criminal or civil action being taken by the Health & Safety Executive etc. Substantial volatility in financial performance. The levels of variances between budget and actual have been too high, indicating a potential weakness in financial management. Sales risk. Not achieving sales income will impact on both the viability of new schemes against approved hurdles, and the annual income targets for the budget. Major disaster or crisis due to insufficient business continuity planning. Insufficient planning and testing may result in Viridian being incapable of effective response and recovery during a crisis, causing injury, property and reputational damage. Poor data management. Absence of a robust framework that regulates data management will result in poor data quality. Control: Following the decision taken in February 2015 to defer the proposed partnership with asra, the recruitment policy was amended to enable permanent recruitment to critical posts. A new Executive Team was appointed in March 2015 to provide increased stability and leadership. A 2% cost of living increase was awarded in April Communications are now overseen by the Director of Governance and Assurance, and a number of methods are being used to communicate key messages including blogs, monthly newsletters and team briefings. Roadshows were held across the major sites during June 2015 to enhance employee engagement. A Learning and Development programme was delivered during 2014/15. The Executive Team review reports on the HR dashboard, and the Head of People monitors staff turnover. A robust process was put in place to manage Fixed Term contracts and secondments with greater transparency across the organisation. A recruitment campaign is being developed. Work has continued to refresh Viridian s culture. Use of temporary staff will continue to be monitored. Close monitoring of arrears performance will continue. Affordability assessments are embedded into the lettings process. Assessment of the likely impact on arrears from the roll out of Universal Credit has been carried out. Visits continue to vulnerable single people, who may be in the first tranche of universal credit roll out. The financial inclusion team are continuing to support at risk residents. Health & Safety report to Operating Board monthly and to Executive Team and the Risk and Audit Committee quarterly. An independent audit was carried out to determine whether fire safety actions had been incorrectly closed, and an HR investigation undertaken. A Health and Safety Compliance Team was established and meets on a regular basis to assess progress against an action plan. Key Health and Safety Performance Indicators are reported to Board quarterly. The top five most significant variances and their budget holders were identified during 2014/15. Lessons learnt reports were presented to the Executive Team, and the forecasts for these areas were scrutinised and robustly challenged for the Q2 and Q3 forecasts. The Finance Director continues to review performance against budget in detail and challenges any significant variances with the relevant budget holders/ Director. Senior Finance Managers robustly challenge variances and any forecasts which are considered unrealistic. Finance reports to the Executive Team and the Board follow a risk and opportunity based approach. Reservations continue to be closely monitored. A new marketing strategy has been approved and implemented for Bentham House (Royal Arsenal). A new sales website and sales team structure is being implemented and sales will be closely monitored. A project is underway to develop a revised business continuity planning (BCP) framework. A central register of BCP plans and frequency of review/ testing is being developed. A crisis contact list is updated quarterly. A revised Data Management & Security Project is being re-scoped and initiated in the first quarter of 2015/16. A programme of data cleansing will be planned and implemented, and an Information Security Management System will be rolled out across Viridian that will govern how data is managed in the future. 19