Financial Statements 2012 - London & Quadrant Group

lqgroup.org.uk

Financial Statements 2012 - London & Quadrant Group

Financial Statements 2012


Oberon Court, E6


Contents

3

4

7

35

38

39

40

42

44

Executive and advisers

Chairman’s introduction

Report of the board and operating

and financial review

Independent auditor’s report to the members

of London & Quadrant Housing Trust

Income and expenditure accounts

Statement of total recognised surpluses

and deficits

Balance sheets

Consolidated cash flow statement

Notes to the financial statements

Contents | Financial Statements 2012 1


Academy Central, RM8

2

Contents | Financial Statements 2012


Executive and advisers

Board

Turlogh O’Brien CBE (Group Chairman)

Diane Phillips CB (Deputy Chair)

Robert Cooper

(Chair of Audit and Risk Committee)

David Montague (Chief Executive)

Chinnelle Anichebe

Brian Carroll

Frank Chersky

Ainsley Forbes MBE

(resigned 1 September 2011)

Ron Goodman

Joanna Killian

Claire Martin

Helen Meyler

(co-opted 3 November 2011)

Russell Profitt MBE

Simon Rubinsohn

(appointed 1 October 2011)

Executive Group

David Montague (Chief Executive)

Waqar Ahmed (Group Finance Director)

Mike Donaldson

Jerome Geoghegan

Diane Hart

Tom Nicholls

Secretary and

Registered Office

Mo Siakpere

Osborn House

Osborn Terrace

London, SE3 9DR

Principal bankers

Barclays Bank plc

Level 28

1 Churchill Place

Canary Wharf

London, E14 5HP

Principal solicitors

Devonshires

30 Finsbury Circus

London, EC2M 7DT

Statutory auditors

BDO LLP

Emerald House

East Street

Epsom

Surrey, KT17 1HS

Executive and advisers | Financial Statements 2012 3


Chairman’s Introduction

Year ended 31 March 2012

I am pleased to report that L&Q has had another successful

year. Overall satisfaction with our services rose to 82.9%,

we completed 1,620 new homes, we reorganised our

operational delivery and returned a surplus of £95 million.

Our entire surplus is used to boost our balance sheet

enabling us to invest £262 million in new and existing

homes. Our experience over the last year has shown that

it is possible to succeed in the toughest of circumstances.

While substantially growing our surplus, we exceeded our

development targets and boosted resident satisfaction levels

for the fourth year in a row.

L&Q does have considerable advantages. We operate in an

area of very strong demand, our operational and financial

performance leads the sector, we have an able and united

workforce, effective governance, a clear strategy, and an

excellent and long track record of delivery.

Last year I reported our plans to deliver substantial efficiency

savings and our accounts demonstrate that these have

been achieved. These efficiency savings combined with

growth, improved sales performance, a lower interest rate

environment and the benefits of adopting component

accounting has contributed to the significant increase in our

surplus for the year. We aim for value for money in all that we

do and believe that through the measures we have taken, we

can demonstrate this to all our stakeholders.

However, we have to expect austerity and uncertainty to

remain a feature of our operating environment for years

to come. We have to plan properly on this basis, and that

means relying less on government grants and other external

resources and more on resources we generate for ourselves.

While the temptation amid so much uncertainty may be to

retrench and stockpile cash, these are exactly the kind of

conditions when L&Q’s social mission must come to the fore.

The dual impacts on our core customers of the housing crisis

in London and economic austerity are such that we must

continue to build more affordable homes and invest in the

communities where we work.

In our commitment to providing much needed homes and

investing in our communities, we support the employment

of 15,000 jobs whether through direct employment, projects

funded by the L&Q Foundation, development activity, or

maintenance expenditure.

4

Chairman’s Introduction | Financial Statements 2012


Chairman’s Introduction

Year ended 31 March 2012

Our cash flow statement illustrates this commitment

to achieve our social mission. In 2012 the L&Q Group

generated £123 million of cash from its operating activities

and spent £83 million on servicing its debt. A further £247

million was spent on the development of new housing

and investment in existing homes and communities. This

additional expenditure whilst partly financed by government

grant is now increasingly financed from the surpluses we

generate and our ability to raise new loans.

Financial strength is the bedrock of our ability to deliver more

homes and better services. Our £250 million, 21.5 year

bond issue, completed shortly after the year end and priced

at just 4.625%, the lowest in the sector since the financial

crisis erupted in 2007. It illustrated the continuing investor

confidence in L&Q. Our sector-leading credit ratings of

Aa2/AA- were also reconfirmed by Moody’s and Standard

and Poor’s.

During the year in addition to completing 1,620 new homes,

we started work on 1,384 more. Over 100 of the completions

were by Quadrant Construction, our in-house building

team, in only its second year of operation. Our development

pipeline stands at more than 10,000 homes and we remain

the largest developer of affordable homes in London and the

South East. We now manage over 68,000 properties.

The demand for good quality homes at a reasonable price

in London is enormous. Our sales and marketing team sold

nearly 400 shared ownership homes and let a further 342 at

intermediate rents. Visitors to the shared ownership pages

of our website increased by 230% compared to the

previous year.

Meanwhile, resident satisfaction with our services, at 83%,

is a full ten percentage points higher than four years ago

- a real achievement in these times of austerity. We have

reshaped our housing management operations through

the creation of seven new neighbourhoods, bringing the

service closer to residents and making it more responsive. In

addition, our significant change programme over the last year

has made us considerably more efficient.

In 2011 we also established the L&Q Foundation, setting

aside £100 million of our capacity to invest more in our

communities. The priorities, set in close consultation with

residents, include projects to support younger people,

creating employment and training opportunities, developing

communities and tackling financial exclusion. L&Q

Foundation’s achievements in the last year include reaching

out to over 3,500 people participating in activities, with over

200 people helped into work or sustainable volunteering

and more than 700 people supported to gain qualifications

or accreditations.

We are very conscious that austerity, inflation, welfare reform

and rising energy prices will have increasing effects on many

of our customers. We expect financial exclusion to be a

growing problem and we have already taken action to try to

reduce it where we can.

L&Q is committed to keeping rents affordable and, with

the close co-operation of our local authority partners, our

Affordable Rents will average around 60% of market rent

levels, rather than the maximum 80% allowable under the

investment model. We have maintained our sector-leading

low levels of rent arrears, reduced evictions and forged new

partnerships with credit unions, Citizens’ Advice Bureau and

others to ensure residents have good access to advice

and assistance.

Looking to the future, it is clear that maintaining and building

on our success will require a more commercial approach to

how we operate. This will be a careful balance, taking further

measured risks and entering new markets while ensuring we

are not over-exposed. For example, we have set an upper

limit of £1.25 billion for work in progress on our investment

in new homes, with rigorous plans, targets and controls in

place to ensure our investment remains sustainable.

A more commercial approach should not be mistaken for any

move away from our guiding ethos and values, however, L&Q

is and will remain a social business. We are for profit, but not

for profit distribution. Commercial returns will be used solely

to help fund our social purpose. Every penny we generate

will be reinvested in homes, services and communities.

We fully expect the environment to remain challenging.

But L&Q has the skills, quality, financial strength and

commitment for our mission to succeed. We look to the

future with confidence.

Turlogh O’Brien

Chairman, L&Q Board

Chairman’s Introduction | Financial Statements 2012 5


Our mission

Corporate objectives

Responsible growth

Resident satisfaction

What this means

How we get there

Operational

excellence

Our people and

organisation

Financial strength

How we measure success

KPI framework

L&Q success factors

6

Chairman’s Introduction | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

The Group Board presents its report and audited

consolidated financial statements of the London and

Quadrant Housing Trust (the “Trust”) and its subsidiary

undertakings, forming the L&Q Group, for the year ended

31 March 2012.

Overview of the business

The L&Q Group (the “Group”) is one of the largest providers

of affordable housing in the UK, managing over 68,000

homes in London and the South East of England. We

work with over 140 local authorities with over 80% of our

homes located in London boroughs. We have the largest

development programme of any Registered Provider

operating in the London area.

As a Registered Provider, L&Q Group is a social enterprise

and all of our surpluses are reinvested in our business.

•§

Developing properties for outright sale to generate profit

and cross subsidise social housing.

•§

Managing student and key worker accommodation.

•§

Investing in community development and regeneration

schemes for existing properties and those transferred

from local authorities, to improve the quality of life in

local neighbourhoods.

During the year the number of properties under management

increased by 1,500. Fig 1.1 illustrates the growth in the

number and the open market value of homes over the past

five years. The open market value is indicative only, as the

Group does not intend to dispose of its properties.

London & Quadrant Housing Trust is the parent organisation

of the L&Q Group. Fig 1.2 shows the Group’s main trading

subsidiaries as at 31 March 2012.

The Group’s activities are focused on achieving the mission

statement of “creating places where people want to live” for

its diverse residents by:

•§

Developing affordable homes for people who cannot

afford to rent or buy in the open market.

•§

Providing a range of housing products for the

intermediate market including shared ownership,

sub market, or market rent.

•§

Providing a range of supported housing services, both

directly and through external organisations.

Fig 1.1

2012 2011 2010 2009 2008

Homes managed 68,600 67,100 62,100 60,600 55,500

Estimated open market value £10.8bn £10.3bn £9.4bn £8.5bn £8.8bn

Fig 1.2

Subsidiary

Zest Homes Limited

Quadrant Construction Services Limited

Quadrant Housing Finance Limited

Activity

Housing for outright sale

Construction and development services provided to Group members

Bond finance provided to Group members

Report of the board and operating and financial review | Financial Statements 2012 7


Report of the board and

operating and financial review

Year ended 31 March 2012

Our social mission

Our mission - creating places where people want to live

will be achieved by:

•§

Improving resident satisfaction

•§

Responsible growth

We will deliver this by:

•§

Continuously improving our Financial Strength

•§

Delivering Operational Excellence

•§

Investment in Our People and Organisation

Our key objectives and strategies are set out below:

Improving resident satisfaction -

delivering what matters to residents

Our number one priority is to improve residents’ satisfaction

with their homes, services and neighbourhoods. Over the

last four years, in a very challenging economic environment,

and despite facing external and internal change on an

unprecedented scale, staff at L&Q have delivered a ten

per cent increase in resident satisfaction. This rise in

satisfaction levels has taken L&Q into the league of

world class service providers.

Responsible growth - to deliver more

for residents and communities

Responsible growth is essential for delivering on our

ambitions to:

•§

Increase the supply of high quality affordable homes and

meet the pressing need for new homes across all tenures

in London and the South East.

•§

Further improve the quality of our existing homes and

services to all residents.

Our people and culture are integral to achieving our

objectives. We work to the following core values:

•§

Diversity

•§

Trust

•§

Responsibility

•§

Learning

•§

Passion

We are putting more people on the frontline to take our

services closer to residents and help deliver operational

excellence. During the year we completed a major

programme of change to ensure we have the right structure

in place to deliver our objectives and become even more

efficient in our work.

Key to these changes was the creation of seven new

neighbourhoods, which are now the local face of L&Q

for residents and local authority partners. We have also

delegated more decision making to frontline staff to engage

with communities and meet local need.

Financial strength remains vital to delivering our social

mission. Our business plan reflects our rapidly decreasing

reliance on government grant and assistance, and a greater

dependence on generating surpluses from commercial

activity. Our plans and governance controls are built on

delivering planned efficiencies and taking measured risk to

achieve our objectives.

As set out elsewhere in this report, all surpluses are

reinvested in our social mission - providing more homes,

greater investment in our existing homes and improving the

communities we work in.

The year under review

Economic upheaval, radical welfare reform, a radical

new funding model for affordable housing, more local

authority and consumer power, and a coalition government

determined to cut the huge national deficit fast. Our world

has changed dramatically and very quickly.

With austerity and uncertainty a feature of our operating

environment for the foreseeable future, housing associations

will have to rely less on the resources of others and more

on the resources we generate ourselves. That means even

greater efficiency and continued responsible risk taking to

boost our bottom line, to lever in more private finance and to

maintain our investment in homes, services and communities.

During 2011/12 L&Q took significant steps to adapt our

business to this new world:

•§

We embarked on a substantial programme of efficiency

and internal change, affecting 600 of our people

8

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

•§

We created seven new neighbourhood offices to get closer

to our residents and local authority partners

•§

We reviewed our governance arrangements to ensure they

are effective in a new world of co-regulation

•§

All 300 of our managers completed the L&Q Leadership

Academy to develop a culture of shared leadership and

collaborative learning

•§

Every one of our 1,200 people attended L&Q’s customer

excellence programme to ensure resident satisfaction is

hard-wired into everything we do

•§

We prepared a £250 million bond issue to fund our future

investment plans

•§

We committed to keeping our rents at levels residents can

afford, and embarked on a programme of regular dialogue

with local authority partners to gain their support for

our plans

•§

We set an upper limit of £1.25 billion for work in progress

on the amount we are prepared to invest in new homes

and put in place plans, targets and controls to ensure this

level of investment is sustainable

•§

We boosted our in-house tenancy sustainment team

to ensure every resident affected by welfare reform can

receive a personal visit over the next two years to help

them understand and plan for change

•§

We formed new partnerships with credit unions and

Citizens Advice Bureau to ensure residents have good

access to independent advice and support as welfare

reform approaches

•§

We committed to an energy efficiency programme to help

20,000 residents cut their energy bills and make their

reduced welfare benefits go further

•§

We launched the L&Q Foundation, setting aside £100

million of our capacity to invest in our communities

These intensive and wide ranging initiatives have delivered

excellent operating and financial results:

•§

More efficiency and measured risk taking has increased our

annual surplus from £44 million to £95 million.

Every penny will be reinvested in our homes, services

and communities

•§

Resident satisfaction rose from 80.2% to 82.9%,

maintaining an upward trend for the fourth year running

•§

We secured an 1,800 home development programme

under the new Affordable Rent regime, using the flexibility

offered by government in a way which retained the

support and confidence of our local authority partners and

investors, and which stayed true to our social mission

•§

We maintained sector-leading low levels of rent arrears

while reducing the number of evictions

•§

We retained the strongest investor ratings in the sector

and the confidence of our regulator, receiving their highest

possible grading for governance and viability.

More information about our financial position, operating

performance and development activity is provided later in

this report.

The year ahead – challenges and

opportunities

We face irreversible change in the UK housing market,

especially in L&Q’s heartlands of London and the South East.

Chronic undersupply combined with huge latent demand has

created a dysfunctional market, unaffordable for too many

households. The National Housing Federation’s publication,

‘Home Truths, 2011’, illustrates this point:

•§

The average house price in London was £408,385 in 2011,

15.1 times the median income of £27,128

•§

At this level, a person buying the average London home

with a 75% mortgage would need a deposit of £100,000

and to have an income of £87,500

•§

Despite the recession, London house prices are now 40%

higher than they were in 2005

•§

362,289 households, or over 800,000 people, are on

London’s social housing waiting lists, one in nine of the

population and an increase of 84% in the last ten years

•§

Housing associations were able to develop just 12,179

homes in the capital in 2010/11

•§

237,000 households are living in overcrowded conditions

in London

Report of the board and operating and financial review | Financial Statements 2012 9


Report of the board and

operating and financial review

Year ended 31 March 2012

As a consequence of these pressures, a higher proportion

of people live in the private rented sector in London than

anywhere else in the country, and Savills predict that market

renting will form 35% of tenure in the capital within the next

five years.

While the aspiration for home ownership is still strong, we

appear to be moving towards the German model, where a

large proportion of people expect to spend much of their

lives in market rent accommodation. In England this is likely

to dilute aspiration over time, as pragmatism takes over

and people gradually accept that they may never be able

to afford to own a home. This brings new challenges for

the housing market - challenges of tenant security, quality

of accommodation, affordability, and the appetite of large

investors to fund more market rented homes.

The new Affordable Rent model, with its own challenges

and opportunities, provides an insight into how the rented

housing world might evolve in the years to come.

On the challenge side, the new model is more complex, more

difficult to predict, not entirely compatible with welfare reform,

and offers less certainty to future tenants.

But on the opportunity side, it provides housing associations

with greater flexibility. We can use that flexibility to offer a

more diverse product range to our customers, and to drive

greater competition on price, quality and volume. In the

longer term, this could mean greater choice for customers.

raised additional private investment, reduced grant rates,

completed their Decent Homes programmes, provided

more affordable homes and increased resident satisfaction

year on year.

As a sector we have some great advantages: we remain

attractive to private investors, demand will continue to

outstrip supply for many years to come, and we have

a strong track record of delivery which can be measured

in generations.

L&Q has more advantages than most. We operate in an area

of very strong demand, we deliver sector-leading operational

and financial performance, we are good at what we do and

we are happy to work in partnership where others do things

better. We have an able and united workforce, effective

governance, and we are often at our best when faced with

big challenges.

Just as important, we are very clear about who we are

and what we are here to do. Our commitment to our social

mission is absolute. We will use commercial returns solely to

help fund our social purpose. We are a social business, for

profit, but not for profit distribution.

The environment we are working in is challenging and will

remain so for several years. But we have the skills, quality,

financial strength and commitment to our mission to succeed

in even the toughest circumstances. We can look to the

future with every confidence.

Social housing volumes will always be dependent on public

subsidy and this transitional period to Affordable Rent will

test us all. But austerity may herald a new era of innovation

and social enterprise in the way we work. Over time we

hope to see the evolution of a new affordable rented housing

market; one which is open to everyone and offers security,

quality, affordability and a pathway to ownership for those

who choose it. Housing associations can make this work and

organisations like L&Q will thrive by making sure we get our

business model right.

Over the last four years, according to the housing regulator,

housing associations have reduced their operating costs,

improved their operating margins, boosted their bottom lines,

10

Report of the board and operating and financial review | Financial Statements 2012


The Wired for Success

project, funded through the

L&Q Foundation, is giving

12 female L&Q residents

the chance to train to

become electricians.

Springhead Parkway, DA11

Report of the board and operating and financial review | Financial Statements 2012 11


Report of the board and

operating and financial review

Year ended 31 March 2012

Financial performance in the year

Group financial results: Five-year summary (£ million)

Income and expenditure account 2012 2011

(restated)

2010 2009 2008

Turnover 368 327 330 306 296

Operating costs and cost of sales (224) (238) (243) (240) (215)

Operating surplus 144 89 87 66 81

Net interest charge (65) (62) (43) (41) (53)

Surplus on sale of assets 16 17 17 12 24

Surplus for the year 95 44 61 37 52

Balance sheet 2012 2011 2010 2009 2008

Housing properties at cost less depreciation 4,618 4,411 4,247 4,023 3,590

Social Housing and other grant (2,564) (2,515) (2,336) (2,215) (2,023)

2,054 1,896 1,911 1,808 1,567

Other tangible fixed assets and investments 51 55 53 28 15

Net current assets 340 457 355 196 117

2,445 2,408 2,319 2,032 1,699

Loans due after one year 1,749 1,779 1,880 1,667 1,329

Other long term liabilities 216 186 28 12 7

Negative goodwill - - 44 44 45

Reserves 480 443 367 309 318

2,445 2,408 2,319 2,032 1,699

Financial ratios 2012 2011 2010 2009 2008

Operating margin - on social housing lettings 46% 34% 37% 31% 34%

Operating margin - all activities 39% 27% 26% 22% 27%

Interest cover - excluding asset sales 220% 142% 202% 161% 153%

Interest cover - including asset sales 244% 170% 242% 190% 198%

Net gearing 53% 51% 53% 56% 51%

Operating cost per home managed - £ 2,700 3,200 3,100 3,300 3,100

Debt per home managed - £ 23,700 22,600 23,400 22,700 21,300

Note: 1. The accounts for 2012 and 2011 reflect the adoption of the Statement of Recommended Practice Update 2010. The 2008 to 2010 comparatives have not been

restated to show the resultant impact of adopting a component accounting policy. Further information on all accounting policy changes is provided in these accounts.

2. The consolidated financial statements are published on the Group website www.lqgroup.org.uk

12

Report of the board and operating and financial review | Financial Statements 2012


Atlip Road, HA0

Report of the board and operating and financial review | Financial Statements 2012 13


Report of the board and

operating and financial review

Year ended 31 March 2012

Fig 1.3 Income & expenditure summary

Turnover - £ million

Surplus on sale of assets - £ million

Annual surplus - £ million

95

61

52

44

37

24

12

17 17

16

296

306 330 327 368

2007/08

2008/09

2009/10

2010/11

2011/12

The Group demonstrates strong financial management. Our

financial health and viability allows us to invest in quality

homes and services. Our key financial indicators are:

•§

Group surplus - measuring our overall profitability

•§

Operating margins by activity - measuring efficiency and

profitability across our income streams

•§

Cash interest cover - measuring our ability to service debt

from operational cash flows

•§

Gearing - measuring our level of indebtedness

Fig 1.4 and Fig 1.5 detail the sources of our income and the

nature of our revenue expenditure in 2011/12.

Income and Expenditure

This year’s Group surplus of £95 million (2011: £44 million)

is the highest we have ever achieved. It was delivered by,

in part, accomplishing the first half of our £22m efficiency

programme. The surplus is in line with forecast, marginally

above budget and considerably higher than last year, an

excellent result given the economic backdrop. Our strong

financial position enables us to face the challenges of the

future with confidence. Some key facts are:

•§

During the year we rationalised our structure to achieve

greater operational efficiency, improve value for money

and improve customer service. The benefits are already

showing in our financial performance.

•§

Group turnover rose by £41 million to £368 million. £28

million of this rise came from increased rent and service

charge income (through a combination of growth and

inflation), while outright and first tranche sales income grew

by £16 million.

•§

Operating costs fell by £28 million to £185 million. This

arose from:

--

Adopting component accounting with higher levels of

planned major works treated as balance sheet items, and a

corresponding but less substantial increase in depreciation;

a net effect of £12m.

--

A £8 million lower net impairment charge compared to the

previous year.

14

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

--

A reduction in development and marketing costs of

just over £5 million, through improvements in sales

volumes and profitability, and efficiency savings from the

amalgamation of our development and sales teams.

--

The previous year provision of £5 million for the costs of

our organisation change programme dropping out of the

accounts, following completion of the programme.

--

Containment of an increase in overhead costs through the

efficiency programme, whilst increasing our expenditure on

community development activity.

•§

Sales turnover and cost of sales rose by £16 million and

£14 million respectively. Included in the £40 million cost

of sales figure is a £4 million write down incurred in our

outright sales subsidiary on a specific scheme where sales

values have changed significantly.

•§

The net result of the above changes is a rise in our

operating surplus of £55 million to £144 million and an

improvement in our operating margin of 12% to 39%.

•§

We continue to benefit from low interest rates. The

operating surplus of £144 million comfortably exceeds the

net cost of interest payable by £79 million. Interest cover

excluding asset sales is at a high of 220%.

•§

Our surplus from the disposal of fixed assets reduced

by £2 million to £16 million. We are not reliant on the

disposal of assets to generate profit and disposals

are only undertaken as part of an effective asset

management strategy.

Fig 1.4 Analysis of Group Turnover

Rents receivable - £289.3m

Service charges - £25.4m

Sales income - £45.0m

Other income - £8.6m

Fig 1.5 Analysis of Group Expenditure

Routine maintenance - £74.0m

Financing costs less surplus

on assets disposals - £49.4m

Other costs - £13.6m

Major repairs - £9.2m

Management - £28.7m

Services - £29.5m

Cost of sales - £39.7m

Depreciation - £29.5m

Report of the board and operating and financial review | Financial Statements 2012 15


Report of the board and

operating and financial review

Year ended 31 March 2012

Reserves

The Group surplus of £95 million increases our accumulated

reserves to £480 million. We have already started to

reinvest this in our business to maintain improvements in

residents’ satisfaction and to deliver more new homes.

Some £60 million will be reinvested to support our £1.25

billion development programme, a further £10 million will be

invested in the market rented sector, and the remaining £25

million will be invested in our homes and communities.

Fig 1.6 below shows that we have invested £4.6 billion

in property, with 45% of this financed from reserves and

loans. During 2011/12 we invested £207 million in housing,

financed by £106 million of cash, £49 million of new grant,

and the balance of £52 million from surpluses generated by

our activities.

Cash flow

Cash inflows and outflows for the year under review are set

out in the cash flow statement on page 42. This shows that:

•§

Operating activities generated £123 million of cash (an

increase of £12 million).

•§

Our net interest cash outflow reduced by £3 million to

£83 million.

•§

Our cash interest cover, as calculated using the cash flow

statement, is 148%, and an improvement from the 130%

reported in the previous year.

•§

During the year we spent £247 million on the construction

and purchase of housing properties and stock

re-investment. This was financed partly by the receipt of

£65 million in capital grant and the £36 million proceeds

from disposal of fixed assets.

•§

The net cash outflow during the year rose by £42 million to

£107 million.

Balance Sheet

Some key Balance Sheet facts as at 31 March 2012 are:

•§

The value of the Group’s housing properties at historic cost

totalled £4.6 billion (an increase of £0.2 billion in the year).

During the year the estimated vacant possession value

rose by £0.5 billion to £10.8 billion.

•§

Social Housing Grant totalled £2.6 billion (an increase of

£50 million in the year).

•§

Homes in management now total 68,600.

•§

We have 10,300 homes in the development pipeline, with

nearly 4,000 on site at the 2012 year end. The 2012 work

in progress value of the homes under construction was

£0.7 billion (2011: £0.8 billion).

•§

During the year development costs were financed from

existing cash balances rather than new loans. As at March

2012, drawn loans were £1.8 billion (£4 million lower than

in 2011).

Fig 1.6 Use of reserves

Use of reserves 2012 2011 (restated)

£’m % £’m %

Investment in housing stock 4,618 4,411

Other net assets 52 66

4,670 4,477

Financed by:

Loans (net of cash) (1,626) 35% (1,519) 34%

Grant (2,564) 55% (2,515) 56%

Reserves (480) 10% (443) 10%

Reserves Nil 100% Nil 100%

16

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

Fig 1.7 Assets/Liabilities

6,000

4,000

2,000

£m

0

2007/08

2008/09

2009/10

2010/11

2011/12

(2,000)

(4,000)

(6,000)

Total assets less current liabilities

Social housing grant

Loans

Reserves

•§

Current assets include £207 million (2011: £164 million) of

properties for shared ownership or outright sale.

•§

Net current assets are £340 million (2011: £456 million), of

which £152 million (2011: £263 million) is cash at bank or

on deposit.

•§

The adoption of SORP 2010 required a restatement of

our housing properties historic cost and accumulated

depreciation by a net £24 million, and previously separately

identified negative goodwill of £41 million (from business

mergers and acquisitions) to be transferred to the

revenue reserve.

•§

Our net gearing ratio has risen from 51% to 53%. Gearing

will continue to rise in the future as we develop homes with

reducing levels of government grant, but will remain within

our financial parameters.

•§

The increase in derivative financial instruments liability to

£81 million (2011: £26 million) is due to a significant decline

in the UK swap curve (an assessment of future interest

rates) over the course of the financial year. L&Q’s intention

is to hold interest rate swaps to maturity.

•§

After the restatement of opening revenue reserve from

£450 million to £467 million, and adding the surplus of £95

million made in the year, less actual losses on our pension

scheme liability of £5 million, revenue reserve stands at

£557 million.

•§

With cashflow hedge reserve £77m in debit, total reserves

are £480 million.

Capital structure and treasury

management

The Group is financed by a combination of revenue

reserves, long-term loan facilities and Social Housing Grant

from the Government.

Treasury activities focus on ensuring the Group has sufficient

liquidity to fund its operations for a minimum of one year,

reducing the impact of adverse movements in interest

rates, ensuring loan covenants are met, and ranking the

preservation of capital ahead of returns when making

investment decisions.

Report of the board and operating and financial review | Financial Statements 2012 17


Report of the board and

operating and financial review

Year ended 31 March 2012

As at March 2012, L&Q has an Aa2/Negative outlook rating

from Moody’s Investor Services and an AA-/Stable outlook

rating from Standard and Poor’s, maintaining our leading

credit status in the sector.

Loan structure

At 31 March 2012 the Group had drawn loans totalling

£1.78 billion and unutilised loan facilities of £100 million. All

undrawn loans are committed facilities, fully secured and

available for drawing within 48 hours. Cash held at the year

end totalled £152 million, leaving net debt at £1.63 billion

(2011: £1.52 billion).

The Group has diversified its funding sources, with 33%

coming from the capital markets and 67% from banks and

building societies as at March 2012.

Fig 1.8 Types of borrowing

Debt repayment profile

The weighted average duration of drawn debt across the

Group is 17 years. The Treasury Strategy ensures we do not

have to refinance material amounts of debt in any one year.

The weighted average cost of debt, inclusive of margins and

hedging activities, as at 31 March 2012, was 4.91% on an

annual effective rate basis (2011: 4.91%).

The Group has minimal refinancing risk for the next five years

(11% of existing drawn loans). We remain confident we can

finance the worse case scenario in our business plan model,

given our cautious approach, our ability to generate cash

flow from operations, and our capacity to attract further

funding based on our covenant ratios and credit ratings.

Currency risk

The Group borrows and invests surplus cash only in sterling

and does not have any currency risk exposure.

Interest rate management

Our treasury policy is to have a mixture of fixed and variable

loans. The Group’s interest rate management policy is risk

averse and states that under normal circumstances:

•§

A minimum of 40% of drawn funds should be fixed on a

long-term basis.

•§

A minimum of 20% should be kept on variable rates.

•§

The remaining 40% is fixed, hedged or kept at variable

rates depending on prevailing market conditions and

business need.

New Bond Issue

Banks & building societies - 67%

Own name bonds - 25%

Club capital markets - 8%

Shortly after the 2012 year end, the Group completed the

issuance of a further £250 million bond. The 21.5-year bond

was issued with a semi annual interest coupon of 4.625%

- the lowest achieved in the sector in the past 5 years. By

raising this finance we have secured our ability to fund our

growth commitments.

While we have used derivatives within our borrowing

agreements to manage interest rate risk arising from sources

of finance, our policy is that no speculative trading in financial

instruments shall be undertaken. At the financial year end,

79% of the Group’s debt (inclusive of hedging activity) was

fixed (2011: 79%).

As at 31 March 2012 the Group had a stand-alone interest

rate swap exposure of negative £81 million (2011: negative

£26 million), based on £300 million of notional paying fixed

rate swaps. The weighted duration of swaps is 25 years

(2011: 26 years) and the weighted paying coupon is 4.26%

on an annual effective rate basis (2011: 4.12%).

18

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

The fair value of derivatives is shown in creditors on the

Balance Sheet, with corresponding fair value movements

disclosed in cash flow reserve or recycled through income

and expenditure, depending on whether the requirements of

‘hedge accounting’ have been achieved. For the year ending

31 March 2012, application of hedge effectiveness resulted in

a £2.1 million charge to the Income and Expenditure account

(2011: £0.3 million).

Loan covenant compliance

Loan covenants are primarily determined by interest cover,

gearing ratios and asset cover, based on social housing

asset values. Covenants are monitored monthly and were

comfortably met throughout the year and at the year end for

all loan facilities.

Fig 1.9 Loan covenant performance

Interest cover excluding disposals Interest cover including disposals Gearing

300%

60%

250%

55%

200%

50%

Interest cover

150%

45%

Gearing

100%

40%

50%

35%

0%

2007/08

2008/09

2009/10

2010/11

2011/12

30%

Report of the board and operating and financial review | Financial Statements 2012 19


Report of the board and

operating and financial review

Year ended 31 March 2012

Value for Money

Our commitment to VFM

The regulatory framework for the sector includes a

specific standard for VFM. Our regulator, the Homes and

Communities Agency (HCA), expects us to “have a strategy

for optimising VFM, and systems to ensure that this strategy

is delivered”.

Achieving Value for Money is a fundamental business

strategy for L&Q. We have embedded the principle of VFM to

ensure we provide an efficient, cost-effective service to our

residents. We are committed to continuing improvements in

the quality of our service and to monitoring our performance

against internal and external benchmarks.

How we deliver on VFM

We have integrated VFM in the following ways:

Governance – Board members’ duties include reviewing

the efficiency of our operations and our VFM performance

and ensuring compliance with the regulators VFM standard.

Managers and staff are encouraged to question how

we operate to find ways of providing a better and more

efficient service.

Financial – Our financial strategy has a clear requirement for

budget and business plan targets that will produce efficiency

gains and improvements to services each year. Detailed

departmental strategies seek procurement improvements and

new ways of collaborative working to ensure value for money

is achieved.

Managing performance – We continually review our

performance and benchmark ourselves against relevant peer

groups. Our aim is to remain in the top quartile for financial

strength and quality of services. Our Operations Board

comprising senior staff from various departments carries

out reviews to help us understand the costs of our various

activities and identify service improvements.

Planning process - Our annual business planning process

across all divisions aims to achieve the best service to

residents at the most efficient cost, and to generate

significant financial headroom to allow us to invest in

improved services and responsible growth.

Our people – We are committed to investing in our staff

and rewarding outstanding performance to improve resident

satisfaction and financial strength. All staff are entitled to a

performance related bonus of up to 5% on the condition

that we meet both our resident satisfaction and financial

strength targets.

Our VFM standard

Our Value for Money standard, agreed with residents, states:

•§

We will ensure residents receive value for money through

their rent and service charges.

•§

We will invest in the services that matter most to residents.

Surveys during the year showed that 75% of residents felt

their rent and service charges were value for money.

Our staff and systems are essential to increasing satisfaction

even further. The ‘L&Q Direct’ customer service helpdesk

answered nearly 800,000 calls in 2011/12, with fewer than

3% abandoned. We also received nearly 100,000 items of

incoming post.

Surveys of our customer service activity showed:

•§

93% satisfaction with ease of contacting us.

•§

95% satisfaction with helpfulness of L&Q Direct staff.

•§

89% satisfaction with results of query.

In all cases these results exceeded both our performance

targets for last year.

Resident focus – Improved resident satisfaction with

services that are both reliable and value for money is a

key objective in our Five Year Plan. Our plans are updated

annually. The Board and senior staff regularly monitor

progress on resident satisfaction levels. We are committed

to residents receiving value for money from their rent and

service charges.

20

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

How we compare

We aim to measure or compare our VFM on a verifiable likefor-like

basis with other organisations.

Currently, the main public sources of information available to

benchmark our performance are annual financial statements

and the data provided in regulatory publications. The

following table illustrates how we compare on financial and

housing management performance. The table summarises

our key VFM measures and comments on performance.

Further analysis can be found on our web site.

Through our financial strategy we continue to focus on

economies and efficiencies across our operating cost base,

including reduced management, maintenance and service

costs per home. This has led to a boost in operating margins

on core social housing lettings to 46%. We continue to show

restraint on executive remuneration.

•§

Seek procurement efficiencies through rationalisation and

re-tendering of contracting arrangements across

the Group.

•§

Actively manage our portfolio of homes and consider

opportunities to release equity for reinvestment through

switches of tenure.

•§

Identify and dispose of stock beyond economic repair to

recycle funds for new supply.

•§

Take action to reduce the gap between service expenditure

and income.

•§

Explore alternative service delivery options.

§ • Increase understanding of how our performance compares

to our peer group and identify areas for further investigation

and improvement.

With significant welfare reform in the pipeline, our focus will

be on cash collection. Our low level of rent arrears at

3.5% exemplifies our effectiveness in debt recovery and is

sector-leading.

However, the true litmus test of our effectiveness is resident

satisfaction with our services. We continue to show year on

year improvements in the key areas of overall satisfaction,

satisfaction with the rent and value for money of services.

While the analysis on the next page generally demonstrates

an improving trend for L&Q, we accept the need to

continually improve performance. During the next year

we will:

•§

Carry out a programme of VFM based business reviews

across key parts of our operating activity.

•§

Target £11 further million efficiencies to our operating

cost base, to generate internal funding to support our

development pipeline of £1.25 billion and 10,300 homes.

Report of the board and operating and financial review | Financial Statements 2012 21


Report of the board and

operating and financial review

Year ended 31 March 2012

VFM Analysis

Management costs

per home - £

Total maintenance costs

per home charged to I&E

account - £

Service costs per

home - £

Social housing lettings

operating margin - %

Chief Executive pay

per home - £

L&Q

2012

L&Q

(not restated)

2011

(note 2)

London peer

group 2011

average

(notes 1 & 3)

449 481 870

1,300 2,000 1,325

462 475 500

46% 33% 25%

3.20 3.10 5.00

Notes:

1. The London peer group comprises the 10

largest associations operating in and around

London. The averages are taken from the

latest published financial statements and

regulatory returns for this peer group at the

time of producing this report.

2. 2011 comparatives are extracted from L&Q

and its peer group’s 2011 audited financial

statements, and have not been adjusted for

the impact of adopting component accounting

in 2012.

3. N/A = information not published or available at

the time of producing this table.

Current rent arrears - % 3.5% 3.5% 5.9%

Bad debts per home - £ 36 15 25

Rent void losses

per home - £

Financial commitments

as a proportion of fixed

assets - %

Residents satisfaction

overall - %

Residents satisfaction

with maintenance

service - %

Residents satisfied that their

rent provides VFM - %

56 63 80

64% 66% 29%

83% 80% 77%

80% 78% 80%

75% 74% N/A

22

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

Operational performance and

benchmarking

The table below details some of our key housing

management and maintenance performance indicators.

Operating performance is reviewed monthly by the Executive

Group and quarterly by the Group Board to ensure we are

achieving our objectives and strategies. We set ourselves

challenging targets to improve year on year through our

annual planning process.

Residents regularly tell us that the services they value most

are items relating to the repair and upkeep of their home.

This is where we focus much of our energy and budgets. As

a result, our stock meets the Decent Homes Standard and

satisfaction is high. We will maintain this level of focus and

commitment into the future.

We place high importance on resident satisfaction and

ensuring our services are efficient and effective. Seven of

our eleven key indicators saw an improvement on 2010/11,

three showed the same level of performance as the previous

year, and in only one key indicator area, performance fell.

However, where performance dipped we remained within our

target performance level.

Key Performance Indicators 2012 2011 2010

Resident satisfaction with us as a landlord 83% 80% 77%

Satisfaction with the last repair 87% 86% 86%

Overall satisfaction with the maintenance service 80% 78% 76%

Current rent arrears 3.5% 3.5% 3.5%

Voids as a percentage of stock 0.8% 1.2% 2.1%

Void turnaround (general needs-weeks) 4.7 5.1 6.0

Homes failing Decent Homes 0% (note 1) 0% (note 1) 1.9%

Percentage of complaints dealt with at initial stage 94% 97% 93%

Emergency jobs completed on time 98% 96% 98%

Urgent jobs completed on time 98% 98% 96%

Standard jobs completed on time 98% 97% 97%

Note 1: As at 31 March 2012 all our homes met the Decent Homes Standard, except for some acquired following a 2010 stock transfer

from LB Lewisham

Report of the board and operating and financial review | Financial Statements 2012 23


Report of the board and

operating and financial review

Year ended 31 March 2012

Indicators 2012 2011

Overheads per home - £ 299 307

Highest earner to lowest earner ratio 16.7 16.0

Chairman’s pay per home - £ 0.35 0.36

Cash collection - % 98% 97%

Spend per social housing unit on new supply - £ £3,680 £2,900

Openness and transparency

During 2011/12 we increased our commitment to openness

and transparency by publishing more information, both in our

financial statements and on our website. We publish detailed

information about performance, expenditure and employee

salaries to ensure residents, stakeholders and the public

can judge the services we provide and our effectiveness

for themselves.

The information in the table above further illustrates

our performance, but cannot be compared against any

peer group this year. Unfortunately, we cannot always

obtain appropriate benchmarking information from

published sources.

Development activity

We exceeded our build and sales targets for the year. During

the year we started 1,384 homes and completed 1,620

homes. This includes over 100 homes built by our in-house

team, Quadrant Construction, in only their second year

of activity.

The sales and marketing team sold 391 homes and let a further

342 properties at intermediate market rents. At 31 March 2012

only 16 homes handed over more than six months previously

were unsold and 50% of these were under offer.

A highlight was the completion of 43 homes at Plashet Grove,

London, E6, which we believe to be the first full Code for

Sustainable Homes (CSH) Level 5 scheme in the capital. It

includes homes for rent, shared ownership and outright sale.

Several of our developments attracted awards, including:

•§

Affordable Home Ownership Awards - Winner of -

“Best Design” – Greengate House, E13

•§

Daily Telegraph British Home Awards - Winner of -

“Best Affordable Scheme” - Greengate House, E13

•§

Evening Standard - Winner of - “Best New Home in the

Affordable Homes Sector” - Greengate House, E13

•§

Daily Telegraph British Home Awards - Commended

in - “Housing Project of the Year” - Alie Street, EC1 (in

partnership with Barratt Homes)

•§

Affordable Home Ownership Awards - Shortlisted in -

“Best Small Development” - Birches Close, N17

In partnership with Countryside, L&Q was selected to deliver

the regeneration of the Dollis Valley Estate by the London

Borough of Barnet, continuing our strong track in this field. The

first phase of our regeneration scheme on the Aylesbury Estate

in Southwark was completed and we started on site with the

first phase of our scheme at South Acton in Ealing.

We continue to be active in the land market, acquiring

1,040 plots during the year for future homes across a range

of tenures.

At March 2012, 4,000 (39%) of our 10,300 home development

pipeline was on site. 70% of homes on site are affordable,

making us the largest Registered Provider developer in London

and the South East.

24

Report of the board and operating and financial review | Financial Statements 2012


We set up the Merton and

Sutton Youth Bank in 2009

to provide small grants to

local youth groups, which can

apply for up to £500 to

undertake activities, go on

trips and help contribute to

their community.

Report of the board and operating and financial review | Financial Statements 2012 25


Report of the board and

operating and financial review

Year ended 31 March 2012

Community investment activity

In 2011 we launched the L&Q Foundation, increasing our

investment in communities and building on the success

of the Ujima Foundation, a commitment we made in 2008

to provide £250,000 a year for community projects. The

launch was attended by L&Q residents, community and local

authority partners, and many people who had contributed to

the Ujima Foundation’s success.

The L&Q Foundation will use funds of £1.5 million a year

to tackle those disadvantaged by increasing skills and

employability; providing opportunities for young people

and for older residents; helping people access debt advice

and support with managing their finances; and building

stronger communities.

Some of the L&Q Foundation’s achievements in the last

year include:

•§

Over 3,500 people participating in activities.

•§

Over 200 people helped into work or sustainable

volunteering.

•§

Over 700 people supported to gain qualifications

or accreditations.

A good example of the kind of work the Foundation will

undertake was our partnership with Bexley Adult Education and

Bexley Voluntary Service Council to provide over 230 residents

with access to free training in first aid, healthy eating, food

hygiene, IT skills and conflict resolution. For many participants,

the training provided their first ever qualification. It has helped

some secure employment and given most the confidence to

access further training and acquire new skills.

We will also invest £70 million through the L&Q Foundation over

the next few years to build community facilities, often as part of

wider neighbourhood regeneration projects.

Our commitment to community investment converts to

a capacity to undertake capital and revenue community

projects to the value of £100 million.

Resident involvement activity

We are passionate about engaging with our residents in a

variety of ways.

Our annual residents’ conference in March 2012 was

attended by over 100 residents. They took part in workshops

and a question and answer session with the Group Chief

Executive and Chair.

Nearly 400 residents are volunteer ‘Estate Champions’,

which involves them working closely with our local staff to

improve the areas they live in.

Our neighbourhood committees are made up of residents

from across London and the South East. During 2011/12

these committees approved funding of over £300,000 from

the L&Q Foundation to support local community projects.

The Chair of each Neighbourhood Committee make up our

Residents’ Board. The Residents’ Board works in partnership

with the L&Q Group Board to hold the organisation to

account on service quality and performance and to improve

the services we provide to residents year on year.

We use regular resident surveys to gain further feedback

on the quality of our services and highlight where service

improvements can be made.

Stock transfer regeneration activity

L&Q has won the support of council residents for several

local authority stock transfers in recent years. Following

transfers, depending on the promises we have made, we will

either demolish and rebuild estates or carry out large scale

refurbishment programmes.

For example, in Hackney we have been carrying out a

£200 million, six year project to demolish the existing 485

properties on the Haggerston West and Kingsland estates,

transferred to us in 2008, and replace them with 761 homes

of varying tenures. In addition, we are constructing a five

storey community centre and nursery, plus ten retail units.

The first two new residential blocks will be completed in the

summer of 2012, providing 185 high quality homes for the

returning residents.

26

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

We have also set up a local management forum, consisting

of tenants, leaseholders, local councillors, L&Q officers and

Hackney council officers. The role of the forum is to ensure

that throughout the regeneration period, residents’ views are

fully taken into account and the commitments made in our

offer document prior to transfer are properly implemented.

In south London, on three estates in Lewisham, we have

started a £69 million, five year programme of work to improve

the 3,600 homes transferred to us in 2010 and to invest in

community projects.

We have already installed over 2,000 new kitchens and

bathrooms and will achieve Decent Homes Standard

compliance on all 2,500 tenanted properties within 20

months of the transfer, well in advance of the two years we

originally promised. Resident satisfaction with the works is

currently 97%.

Sustainability activity

In 2011 the Board agreed a sustainability strategy to 2015.

The aims of this new strategy are to:

•§

Provide a focused action plan to help residents tackle fuel

poverty through practical intervention and continued advice

and support.

During 2011/12 we created a £5 million project to install

7,276 solar panels across 469 sites in London and

surrounding areas. These panels are expected to:

•§

Generate over two megawatts of electricity a year.

•§

Provide estimated revenue of over £20 million in the next

25 years.

•§

Lower carbon emissions by on average 777 tons of CO2

a year.

•§

Reduce the communal electricity bills for 2,840 of

our residents.

We also completed a project to install cavity wall and loft

insulation in 9,000 of our homes. These works are forecast to

reduce heating bills for our residents by £1.6 million, as well

as lowering carbon emissions.

In 2011 L&Q was also awarded the title of “most

sustainable organisation” in the Housing Association

category of a competition held by the Public Sector

Sustainability magazine.

•§

Help L&Q control its energy costs and improve our carbon

reporting infrastructure.

As part of the strategy, L&Q is participating in the Feed in

Tariff scheme, the Government’s support mechanism for

renewable electricity generating technologies.

Report of the board and operating and financial review | Financial Statements 2012 27


Report of the board and

operating and financial review

Year ended 31 March 2012

Risk and uncertainty

The Board reviews risks that could prevent the Group achieving its strategic objectives. The Executive Group and the Audit

and Risk Committee also consider risks throughout the year. The Board considers the following external risks the most likely to

affect future performance and our ability to achieve our Five Year Plan.

Risk

Austerity and

economic

uncertainty

Comments and risk mitigation

Housing associations are managing a number of economic risks, in particular continued reductions in public

spending and uncertainty in the housing and credit markets.

The coalition Government remains committed to implementing their austerity programme to cut budget

deficits. This has resulted in:

•§

a 60% reduction in development grant funding to the sector, partly offset by the ability to charge up

to 80% of market rent levels on letting new homes. Our financial planning had to be revised to allow

for greater dependence on internally generated income, including sales profits, to cross-subsidise

future development.

•§

budget reductions of between 25% and 50% over four years for local authorities

and government departments.

•§

a withdrawal of public services and support that many of our residents have relied on.

There is also a growing risk that the attempt to achieve collective fiscal austerity across Europe could affect

the UK housing market, buyer confidence, investor appetite and the cost of credit.

Our response includes:

•§

a significant programme of internal change to improve efficiency, further strengthen our finances and manage

risk more effectively.

•§

imposing an upper limit on our development exposure.

•§

testing our ability to withstand the combined impact of a credit freeze and complete loss of buyer confidence.

While this worst case scenario would reduce our annual surplus, it would not cause us to breach our key

financial covenants with lenders.

•§

issuing a £250 million bond to ensure our capital commitments can be funded.

•§

launching the L&Q Foundation to support our residents and their communities over the coming

years of austerity.

•§

maintaining our dialogue with investors, local authorities, government departments and politicians to ensure

we create effective partnerships and get the best outcome for registered providers.

28

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

Risk

Welfare

reform

Comments and risk mitigation

With the Welfare Reform Act on the statute book, the Department of Work and Pensions (DWP) has

embarked on a transition programme involving radical simplification of the benefits system, budget reduction

and payment of benefits direct to the resident.

The Government made a number of concessions as the Welfare Reform Bill passed through the House of

Lords, in part recognising our need to maintain investor confidence. Housing associations remain concerned,

but we are partly reassured by DWP’s commitment to a number of demonstration projects, to a review in 12

months, by their assurance that rents will be paid direct to the association where there is sustained tenant

failure to pay, and by the ability of vulnerable groups to have their rent paid direct.

Our response includes:

•§

setting our rents under the new Affordable Rent model at levels that fall below the Universal Credit limit.

•§

deliberately making cautious assumptions about the impacts in our financial plan. We have assumed rent

arrears will double to 7% for all residents from next year. This has a direct impact on the amount of new

debt we can service and the amount we are prepared to invest in new homes.

•§

growing our self-funded tenancy sustainment team so every one of the estimated 30% of our residents

who will be affected receives a personal visit over the next two years. This will help ensure they understand

the impacts, claim the benefits they are entitled to, and manage their finances as effectively as possible.

•§

entering into partnerships with Citizens Advice Bureaux and Credit Unions across London and the South

East, so residents who want independent advice and support can have access to it.

•§

investing in programmes to assist residents, including an energy saving programme to help 20,000

households to reduce their energy bills and make their limited finances go further.

Localism

The Localism Act 2011 has produced new freedoms and flexibilities for local government, new rights and

powers for communities and individuals, planning reform to make the system more democratic and effective,

and more local decision making powers around housing issues.

But for all the new powers, local authorities and communities have less money available to use them.

There remains a perceived conflict between the National Planning Policy Framework’s presumption in

favour of sustainable development and the new powers given to local communities to influence, and

possibly halt, new development.

Our response includes:

•§

creating seven new neighbourhoods to ensure we remain close to our residents and local

authority partners.

•§

giving ultimate responsibility for all seven neighbourhoods to one Executive Group Director to ensure

consistency across L&Q.

•§

a new officer-led Operations Board to oversee performance and ensure all Group divisions are working

together. Each neighbourhood is held to account by a resident-led neighbourhood committee, with the

Chairs on our Residents’ Board, which has a direct link into the L&Q Group Board.

•§

creating local partnerships across London and the South East to improve the communities and life

chances of our residents, through the newly established L&Q Foundation.

•§

maintaining a dialogue with local authorities.

Report of the board and operating and financial review | Financial Statements 2012 29


Report of the board and

operating and financial review

Year ended 31 March 2012

Risk

Affordable

rent

Comments and risk mitigation

For housing associations continuing to develop, the new Affordable Rent investment model has resulted in

greatly reduced grant, more reliance on private borrowing and internally generated reserves, and the need for

higher rents on new tenancies. The new framework creates a tension between the affordability of our rents

and the number of new homes we can provide.

L&Q’s Affordable Rent contract commits us to deliver 1,800 homes, as part of our 10,300 home pipeline.

Including conversions of existing homes to the new Affordable Rent level, our total exposure to Affordable

Rent is around 3,600 homes from a total housing stock of nearly 69,000 homes.

Our response includes:

•§

taking into account the income of our existing residents and the amount of rent they can afford to pay.

As a consequence, our proposed rents average around 60% of market rent levels, significantly below the

80% maximum. This has some bearing on the volume of programme we can commit to.

•§

committing to work with the g15, the 15 largest housing associations in London, to understand the impact

over time on the one in ten Londoners we house.

•§

working with leading thinkers in the housing sector to influence the funding of affordable housing post-

2015, through the L&Q/PWC ‘Hard Times’ group.

Our experience to date suggests that local authorities are prepared to be pragmatic with rent levels

proposed by L&Q. Similarly, our investors appear to be content with L&Q’s approach and level of exposure.

Corporate governance

The Board

The term “corporate governance” generally refers to the

supervision of how an organisation is run and how the risks to

its business are managed. It embraces regulation, corporate

structure and the function of the Board.

A Board of 12 non-executive members plus the Chief Executive

governs the Trust. The Group Board members and Executive

Group of the Trust are listed on page 3. Each member of the

Group Board (with the exception of the co-opted member

and the Chief Executive) holds one fully paid share of £1

in the Trust, which is cancelled on cessation as a member.

Executive Group members hold no interest in the Trust’s share

capital, and, with the exception of the Chief Executive, are not

members of the Group Board.

L&Q continues to follow best practice with regard to corporate

governance and will, where appropriate, use all reasonable

endeavours to comply with the National Housing Federation’s

“Excellence in Governance – Code for Members” 2010. The

only identified potential area of non-compliance relates to

restricting Board members service to a maximum of 9 years.

We want to keep the flexibility to retain Board members for a

longer period if this is in the best interests of the Group.

Delegation

The focus of the Group Board is on L&Q’s strategy, though it

also has responsibility for overseeing performance. Specific

responsibilities have been delegated to Group committees,

which have their own approved terms of reference. Day to

day performance management is delegated to the Executive

Group. The major committees supporting the Group Board and

governance arrangements during the year under review were:

Audit and Risk Committee – responsible for overseeing

internal audit, external audit, the effectiveness of internal

controls, the risk management framework, and reviewing the

financial statements and financial performance.

30

Report of the board and operating and financial review | Financial Statements 2012


Report of the board and

operating and financial review

Year ended 31 March 2012

Development Committee – responsible for reviewing major

development and investment schemes.

Residents Board – oversees the provision of housing

management services and the work of a number of local

neighbourhood committees.

Governance and Remuneration Committee – responsible

for advising the Board on governance, remuneration, and

Board or committee appointments.

The Residents Board and all committees report back to the

Group Board at each Board meeting.

Membership Details Group Board Audit and Risk

Committee

Governance and

Remuneration

Committee

Development

Committee

Residents

Board

Turlogh O’Brien Chair Chair ü

Robert Cooper ü Chair ü

Diane Phillips Deputy Chair ü Chair

Frank Chersky ü Chair

Chinnelle Anichebe ü ü

Brian Carroll ü ü ü

Ron Goodman ü ü ü

Joanna Killian ü ü

Claire Martin ü ü ü

Helen Meyler

David Montague

Russell Profitt

Simon Rubinsohn

ü

ü

ü

ü

Non-executive Board members were paid as follows:

Position 2012 2011

Group Chairman £20,400 £20,400

Group Board Member (from 1 October 2011) £8,844 £8,670

Supplement for acting as Committee Chair £3,570 £3,570

Report of the board and operating and financial review | Financial Statements 2012 31


Report of the board and

operating and financial review

Year ended 31 March 2012

32

Report of the board and operating and financial review | Financial Statements 2012

Young L&Q residents

at the Camberwell

Foyer in Lambeth had a

very special treat when

the Duke and Duchess

of Cambridge dropped in

for a visit.


Report of the board and

operating and financial review

Year ended 31 March 2012

The Governance and Remuneration committee reviewed the

level of remuneration during 2011/12 and agreed to increase

Board members fees by 2%. The Group chairman waived his

right to an increase.

The Board undertakes an externally facilitated annual review

of its performance using the organisation “Boardview”. The

review includes consideration of members skills, experience

and diversity together with an assessment of how we work

together with the Executive Group directors to improve the

effectiveness of our governance. Boardview do not carry out

any other consultancy work for the L&Q Group.

Statement of responsibilities of the Board

The Group Board is responsible for preparing the Report of

the Board and the financial statements in accordance with

applicable law and regulations.

Industrial and Provident Society law and social housing

legislation require the Board members to prepare financial

statements for each financial year for the Group and Trust

in accordance with United Kingdom Generally Accepted

Accounting Practice (United Kingdom Accounting Standards

and applicable law). The Group Board must not approve the

financial statements unless they are satisfied they give a true

and fair view of the state of affairs of the Trust and of the

surplus or deficit of the Group and Trust for that period.

In preparing those financial statements, the Board is

required to:

•§

Select suitable accounting policies and then apply

them consistently

•§

Make judgements and estimates that are reasonable

and prudent

•§

State whether applicable UK Accounting Standards and

the Statement of Recommended Practice: Accounting

by Registered Social Landlords Update (2010) have been

followed, subject to any material departures disclosed and

explained in the financial statements

•§

Prepare the financial statements on the going concern

basis, unless it is inappropriate to presume that the Group

will continue in business.

The Group Board is responsible for keeping adequate

accounting records, sufficient to show and explain the

Group’s transactions and disclose with reasonable accuracy

at any time the financial position of the association, and

to enable them to ensure that the financial statements

comply with the Industrial and Provident Societies Acts

1965 to 2002, the Industrial and Provident Societies (Group

Accounts) Regulations 1969, the Housing and Regeneration

Act 2008, the Accounting Requirements for Registered Social

Landlords General Determination 2006, and the Statement

of Recommended Practice: Accounting by Registered Social

Landlords Update (2010). They are also responsible for

safeguarding the assets of the Group and, hence, for taking

reasonable steps to prevent and detect fraud and

other irregularities.

Financial statements are published on L&Q’s website, in

accordance with UK legislation governing the preparation

and dissemination of financial statements. This may vary

from legislation in other jurisdictions. The Group Board’s

responsibilities extend to the maintenance and integrity of the

corporate and financial information on the website.

Internal Control

The Board has overall responsibility for ensuring that a sound

system of internal control exists across the Group and for

reviewing its effectiveness.

The internal control framework is designed to manage and

reduce, rather than eliminate, the risk of failing to achieving

business objectives, and can only provide the Board with

reasonable and not absolute assurance against material

misstatement or loss.

The key elements of the system of internal control include:

•§

A Group-wide risk management system (including Health

and Safety) – the Board has established a process for

identifying, evaluating, and managing the significant risks

faced by the Group. This process has been in place

throughout the year and up to the date of the approval of

the financial statements. The Audit and Risk Committee

reviews all risk reports and the Board reviews the risk

position and Health and Safety compliance each year.

This approach is consistent with the Turnbull guidance for

reporting on risk and internal control.

Report of the board and operating and financial review | Financial Statements 2012 33


Report of the board and

operating and financial review

Year ended 31 March 2012

•§

Adopting and complying with the principal

recommendations of the National Housing Federation’s

2010 Code of Governance and accepting this as the

Group’s code of good practice.

•§

Compliance with regularly reviewed written policies and

procedures for all key activities, including Standing Orders

and delegated authorities.

•§

Audit and Risk Committee assurance – the Audit and

Risk Committee meets regularly with members of the

Executive Group and the internal and external auditors

to review specific reporting and internal control matters,

and to satisfy themselves that the internal control systems

are operating effectively. The Audit and Risk Committee

also reviews any follow up action to correct identified

weaknesses.

•§

Internal audit assurance – the Group’s internal audit

function is managed through a corporate assurance unit,

which has a direct reporting line to the Audit and Risk

Committee. The internal audit programme is designed to

review key areas of risk. The head of corporate assurance

meets regularly with the L&Q Chairman and the Chairman

of the Audit and Risk Committee.

•§

External audit assurance – the work of the external

auditors provides some further independent assurance of

the internal control environment, as described in their audit

report. The Group also receives a letter from the external

auditors identifying any internal control weaknesses. In

accordance with best practice guidance, the Audit and

Risk Committee and the Board consider this letter.

•§

Procedures to ensure the employment, retention,

training and development of suitably qualified staff to

manage activities.

•§

The preparation and monitoring of budgets and long-term

business plans. The Board, Audit and Risk Committee

and the Executive Group review Group and subsidiary

performance throughout the year. The reports ensure

variances are investigated and acted upon.

•§

All major investment decisions are subject to appraisal

and approval by a Development committee, the Executive

Group, and, where appropriate, the Board.

•§

Treasury activity and strategy are subject to regular Board

review and approval.

The Board confirms it has an approved fraud policy which

has been distributed to all staff. The policy covers the

prevention, detection and reporting of fraud. Details of

identified frauds are maintained in the fraud register, which

is reviewed annually by the Audit and Risk Committee on

behalf of the Board. The Group has also appointed a Money

Laundering Reporting Officer as part of its compliance with

Anti-Money Laundering legislation.

The Board has delegated authority to the Audit and Risk

Committee to regularly review the effectiveness of internal

control, including risk, and has received regular reports from

this committee throughout the year under review. The Audit

and Risk Committee has received the Chief Executive’s

annual report on the effectiveness of internal control systems,

together with the annual report from the head of internal

audit, and reported its findings to the Board.

No weaknesses were found in internal controls sufficient to

cause material misstatement or loss.

Employee involvement

Our achievements are only possible through the quality,

attitude, knowledge and motivation of our employees.

The L&Q Group rose to 17th place in the 2012 ‘UK Best

Workplaces’ awards list and achieved 32nd place in the

2011 Sunday Times ‘100 Best Companies to work for’

survey. We also retained our Investor in People status.

The average sickness absence per employee was 2.2%

(2011: 2.2%) against a target of 2.2%.

The Group has developed a number of initiatives to develop

and support staff. For example:

•§

We have developed an employee engagement strategy

and worked with our people to define our new

‘Workplace Pledge’. This has improved employee

engagement levels across the business at a time of

dramatic organisational change.

•§

We have continued to embed our values-driven culture by

engaging with our employees and introducing a new online

performance management framework, designed around

our stated values. All managers have been trained in using

the new system and are now applying it.

•§

We have implemented a new e-learning solution to deliver

easy access self-guided learning and excellent value for

money across a range of subjects.

34

Report of the board and operating and financial review | Financial Statements 2012


Independent auditor’s report

to the members

Year ended 31 March 2012

•§

We have concluded the roll out of the “L&Q Leadership

Academy”. All of our people managers have now attended

a tailored leadership development programme, run in

partnership with Cranfield School of Management. This has

delivered a real step change in how people work together,

collaborate and take responsibility to improve services.

•§

All of our people have completed our “Achieving Customer

Excellence” training programme. This has helped us deliver

the highest levels of customer satisfaction in our history.

•§

We have continued to implement a number of diversity

initiatives to ensure L&Q is as diverse as the communities

in which we operate. This has included a developmental

programme for senior women within the business and a

number of projects with Stonewall, as part of our work as

a Stonewall Employer Champion.

Corporate Social Responsibility and Health and Safety

The Group is committed to managing its business in a

socially responsible way, ensuring we adhere to legislation

and operate ethically.

As a social business, we believe Corporate Social

Responsibility should be embedded across our organisation.

Increased transparency and openness are important aspects

of this work. In partnership with our stakeholders we

continually seek to become more sustainable and reduce

our environmental impact. Our employee engagement

programmes and “workplace pledge” are part of our

commitment to keep L&Q a great place to work. Through

the L&Q Foundation we are investing in communities and

improving people’s chances in life. L&Q is also a member of

Business in the Community.

The Board recognises and accepts its legal and moral

responsibilities relating to Health and Safety to ensure, as far

as reasonably practicable, the health, safety and welfare of all

L&Q employees, customers and other persons who may be

affected by the way it carries out its activities. Our Health and

Safety department manage compliance and training within

the Group, and have achieved a 3 star rating assessment

from the British Safety Council.

Equal opportunities

The Group is committed to an active Equal Opportunities

Policy from recruitment and selection, through training and

development, appraisal and promotion to retirement. It is our

policy to promote an environment free from discrimination,

harassment and victimisation. All decisions relating to

employment practices will be objective, free from bias and

based solely upon work criteria and individual merit. L&Q is

responsive to the needs of its employees, residents and the

community at large. We believe in using everyone’s talents

and abilities and we value diversity.

Donations

The Group has made no political donations during the year

(2011: £nil).

Statement of Compliance

The Operating and Financial Review has been prepared in

accordance with applicable Reporting Standards

and legislation.

Key accounting policies

The principal accounting policies are set out on pages 44 to

48. No changes have been made during the year except for

the adoption of the Statement of Recommended Practice

‘Accounting by Registered Social Housing Providers Update

2010’ (“SORP 2010”).

Policy and practice for payment of creditors

It is Group policy to agree the terms of payment at the start

of business with any supplier, ensure that all suppliers are

aware of the terms of payment, and to pay in accordance

with our contractual and other legal obligations.

The Group does not follow a standard or code which deals

specifically with the payment of suppliers.

Independent auditor’s report to the members | Financial Statements 2012 35


Report of the board and

operating and financial review

Year ended 31 March 2012

Going Concern

After making enquiries, the Board has a reasonable

expectation that the Group has adequate resources to

continue in operational existence for the foreseeable future.

For this reason they continue to adopt the going concern

basis in preparing the Group’s financial statements.

Auditors

All of the current Board members have taken all the steps

that they ought to have taken to ensure they are aware

of any information needed by the Group’s auditors for the

purposes of their audit, and to establish that auditors are

aware of that information. The Board members are not aware

of any relevant audit information of which the auditors are

not aware.

The Group has retendered its external audit arrangements.

A resolution to appoint KPMG LLP as auditors will be put to

the Annual General Meeting.

By order of the Board

Turlogh O’Brien

Chairman

Date of approval: 28 June 2012

36

Report of the board and operating and financial review | Financial Statements 2012


Independent auditor’s report

to the members

Year ended 31 March 2012

Independent auditor’s report to the

members of London & Quadrant

Housing Trust

We have audited the financial statements of London &

Quadrant Housing Trust for the year ended 31 March 2012

which comprise the consolidated and Trust income and

expenditure accounts, the consolidated and Trust balance

sheets, the consolidated statement of total recognised

surpluses and deficits, the consolidated 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 Group Board, as a body, in

accordance with the Housing and Regeneration Act 2008

and section 9 of the Friendly and Industrial and Provident

Societies Act 1968. Our audit work has been undertaken so

that we might state to the Group and 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 Group and the Trust’s members as

a body, for our audit work, for this report, or for the opinions

we have formed.

Respective responsibilities of the

Board and auditors

As explained more fully in the statement of Board member

responsibilities, the Board members are responsible for the

preparation of the financial statements and for being satisfied

that they give a true and fair view. Our responsibility is to

audit 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

Practices Board’s (APB’s) Ethical Standards for Auditors.

Opinion on financial statements

In our opinion the financial statements:

•§

give a true and fair view of the state of the Group’s and

Trust’s affairs as at 31 March 2012 and of the Group’s and

Trust’s surplus for the year then ended;

•§

have been properly prepared in accordance with United

Kingdom Generally Accepted Accounting Practice; and

•§

have been prepared in accordance with the requirements

of the Industrial and Provident Societies Acts 1965 to

2002, the Industrial and Provident Societies (Group

Accounts) Regulations 1969, the Housing and

Regeneration Act 2008 and the Accounting Requirements

for Registered Social Landlords General Determination

2006.

Matters on which we are required to report

by exception

We have nothing to report in respect of the following matters

where we are required to report to you if, in our opinion:

•§

the information given in the Report of the Board for

the financial year for which the financial statements are

prepared is not consistent with the financial statements;

•§

adequate accounting records have not been kept by the

Trust, or returns adequate for our audit have not been

received from branches not visited by us; or

•§

a satisfactory system of control has not been maintained

over transactions; or

•§

the Trust financial statements are not in agreement with the

accounting records and returns; or

•§

we have not received all the information and explanations

we require for our audit.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements

is provided on the APB’s website at www.frc.org.uk/apb/

scope/private.cfm.

BDO LLP, statutory auditor

Epsom, Surrey, United Kingdom

Date: 6 July 2012

BDO LLP is a limited liability partnership registered in

England and Wales (with registered number OC305127)

Independent auditor’s report to the members | Financial Statements 2012 37


Income and expenditure accounts

Year ended 31 March 2012

note

Group

2012

£’m

Group

2011

£’m

(restated)

Trust

2012

£’m

Trust

2011

£’m

(restated)

Turnover 2 368.3 327.5 360.6 322.0

Cost of sales 2 (39.7) (26.2) (29.2) (23.1)

Operating costs 2 (184.5) (212.5) (182.6) (212.0)

Operating surplus 2 144.1 88.8 148.8 86.9

Surplus on disposal of fixed assets 4 15.7 17.5 15.7 17.5

Interest receivable and similar income 7a 4.8 2.5 10.1 7.0

Interest payable or similar charges 7b (70.5) (64.7) (74.0) (67.5)

Other finance income/(costs) 20 0.3 (0.3) 0.3 (0.3)

Gift Aid 0.3 - 3.1 1.1

Surplus on ordinary activities before tax 2,8 94.7 43.8 104.0 44.7

Tax on surplus on ordinary activities 9 - - - -

Surplus for the year 16a 94.7 43.8 104.0 44.7

All amounts relate to continuing activities.

The notes on pages 44 to 91 form part of these financial statements.

All surpluses and deficits are historic cost surpluses and deficits.

38

Income and expenditure accounts | Financial Statements 2012


Statement of total recognised

surpluses and deficits

Year ended 31 March 2012

note

Group

2012

£’m

Group

2011

£’m

(restated)

Trust

2012

£’m

Trust

2011

£’m

(restated)

Surplus for the year 94.7 43.8 104.0 44.7

(Loss)/gain recognised on hedging instruments 16b (52.6) 4.0 (52.6) 4.0

Actuarial (loss)/gain on pension schemes 20 (5.2) 13.4 (5.2) 13.4

Total recognised surplus relating to the year 36.9 61.2 46.2 62.1

Prior year adjustment 27 17.7 (23.7)

Total recognised surpluses since the last annual report 54.6 22.5

All amounts relate to continuing activities.

The notes on pages 44 to 91 form part of these financial statements.

All surpluses and deficits are historic cost surpluses and deficits.

Statement of total recognised surpluses and deficits | Financial Statements 2012 39


Balance sheets

At 31 March 2012

Group Group Trust Trust

note

2012

£’m

2012

£’m

2011

£’m

2011

£’m

2012

£’m

2012

£’m

2011

£’m

2011

£’m

(restated)

(restated)

Tangible fixed

assets

Housing properties

cost less depreciation

and impairment 10a 4,618.2 4,411.1 4,588.5 4,371.9

Social housing grant (2,564.3) (2,514.6) (2,564.3) (2,514.6)

2,053.9 1,896.5 2,024.2 1,857.3

Other tangible

fixed assets 10b 24.3 27.2 23.2 26.1

Investments

2,078.2 1,923.7 2,047.4 1,883.4

Homebuy equity loans 175.8 185.4 175.8 185.4

Grant on Homebuy

equity loans (149.0) (157.7) (149.0) (157.7)

Current assets

26.8 27.7 26.8 27.7

Properties for sale 10c 206.7 164.4 90.2 61.5

Debtors 11 115.3 139.1 227.2 236.3

Cash at bank

and in hand 19c 152.2 262.8 150.1 262.7

Creditors:

474.2 566.3 467.5 560.5

Amounts falling due

within one year 12a (134.7) (109.9) (113.4) (109.9)

Net current assets 339.5 456.4 354.1 450.6

Total assets less

current liabilities 2,444.5 2,407.8 2,428.3 2,361.7

40

Balance sheets | Financial Statements 2012


Balance sheets

At 31 March 2012

Group Group Trust Trust

note

2012

£’m

2012

£’m

2011

£’m

2011

£’m

2012

£’m

2012

£’m

2011

£’m

2011

£’m

(restated)

(restated)

Creditors:

Amounts falling

due after more than

one year 12b 1,887.2 1,859.4 1,873.8 1,825.4

Provisions for liabilities

and charges 14 62.4 93.9 62.4 93.9

Pension liability 20 14.9 11.4 14.9 11.4

Capital and reserves

Share capital 15 - - - -

Revenue reserve 16a 556.9 467.4 554.1 455.3

Cash flow

hedge reserve 16b (76.9) (24.3) (76.9) (24.3)

Negative goodwill 17 - - - -

2,444.5 2,407.8 2,428.3 2,361.7

In view of the constitution of the Trust all shareholdings relate to non-equity interests, as disclosed in note 15. The notes on

pages 44 to 91 form part of these financial statements.

These financial statements were approved and authorised for issue by Group Board and signed on its behalf by:

Turlogh O’Brien Robert Cooper Waqar Ahmed

Chairman, Chair of Audit and Risk Committee Group Finance Director

Date of approval: 28 June 2012

Balance sheets | Financial Statements 2012 41


Consolidated cash flow statement

Year ended 31 March 2012

note

2012

£’m

2011

£’m

(restated)

Net cash inflow from operating activities 19a 123.3 111.6

Returns on investments and servicing of finance

Interest received 4.9 2.5

Interest paid (including capitalised interest) (87.5) (87.5)

Other finance costs (0.5) (1.1)

(83.1) (86.1)

Capital expenditure and financial investment

Cash paid for construction and purchase of housing properties (177.2) (219.1)

Capital re-investment in existing stock (70.2) (41.0)

Capital grants received 65.2 131.8

Cash paid for purchase of other assets (1.3) (2.4)

Net proceeds on sale of fixed assets 36.1 39.9

(147.4) (90.8)

Cash outflow before use of liquid resources and financing (107.2) (65.3)

Cash withdrawn from term deposits 26.2 80.5

Net cash inflow from management of liquid resources 26.2 80.5

Financing

19b

Loans received - -

Loans repaid (3.4) (4.4)

(3.4) (4.4)

(Decrease)/Increase in cash and cash equivalents 19b (84.4) 10.8

42

Consolidated cash flow statement | Financial Statements 2012


Maltby Place SE1

Consolidated cash flow statement | Financial Statements 2012 43


Notes to the financial statements

Year ended 31 March 2012

1. Principal accounting policies

The financial statements have been prepared in accordance

with applicable Accounting Standards and the Statement

of Recommended Practice ‘Accounting by registered social

housing providers Update 2010’ (“SORP 2010”), and comply

with the Accounting Requirements for Registered Social

Landlords General Determination 2006.

Basis of consolidation

The consolidated accounts comprise the financial statements

of London & Quadrant Housing Trust and its subsidiary

undertakings, being Quadrant Housing Finance Limited,

Quadrant Construction Services Limited and Zest

Homes Limited.

Turnover

Turnover represents rental and service charge income

receivable (net of void losses), fees receivable, proceeds from

first tranche sales of low cost home ownership and from

properties developed for outright sale, and revenue grants

from the Homes and Communities Agency and other public

authorities. Rental income is recognised on the execution

of tenancy agreements. Proceeds on sales are recognised

on practical completions. Other income is recognised as

receivable on the delivery of services provided.

Housing properties

Housing properties in the course of construction are stated at

cost. Cost includes the cost of acquiring land and buildings,

development costs, and interest charges incurred during

the development period. Staff costs and overheads which

are directly attributable to bringing housing properties into

working condition for their intended use are capitalised.

Housing properties that are depreciated over a period in

excess of 50 years are subject to impairment

reviews annually.

Under low cost home ownership arrangements, the Group

disposes of a long lease on low cost home ownership

housing units to persons who occupy them at a share equal

to between 25% and 75% of value. The occupier has the

right to purchase further proportions up to 100% at the then

current valuation. Low cost home ownership properties are

split between current and fixed assets on initial recognition.

The proceeds from the sale of the current asset element

(“first tranche”) are included in turnover and the related asset

expensed through the income and expenditure statement

as a cost of sale. The remaining element of the property

(“staircasing element”) is accounted for as a fixed asset and

any subsequent tranche sale treated as a part disposal of

a fixed asset. Social Housing Grant in respect of low cost

home ownership properties is allocated against the retained

element of the low cost home ownership property and is

treated as a deduction from fixed asset costs.

The Group operates two flexible intermediate products

whereby the tenant can rent the property and then at a future

point purchase a portion of the property in the same way that

low cost home ownership schemes operate. The future point

of sales is determined by the Group or the tenant depending

on the product. Tenants are able to purchase an undefined

proportion of their property from day one. These properties

have been classified as fixed assets within the housing

properties note under the Intermediate Market Rent category

unless the tenant has indicated that they wish to purchase a

proportion of the property from the outset. This will then be

treated as a first tranche sale with the purchased proportion

reclassified as a current asset and then taken to cost of

sales. For those tenants who rented the property to begin

with or wish to purchase further tranches, this will be treated

as a part disposal of a fixed asset.

Non component works to existing properties

Non component works to existing housing properties are

capitalised where they relate to stock transferred from local

authorities or relate to large scale regeneration projects

and the properties are below standard, as there is a clear

enhancement of the property beyond the standard assessed

when the property was first acquired or constructed.

Investments

Under the Homebuy scheme and Key Worker Living Initiative,

the Trust receives Social Housing Grant representing a

percentage of the open market purchase price of a property

in order to advance interest free loans to a homebuyer. The

loans advanced by the Trust are shown as an investment on

the balance sheet against which the corresponding grant

is netted.

In the event that the property is sold, the Trust recovers

the equivalent loaned percentage value of the property at

the time of the sale. The grant becomes recyclable when

the loans are repaid up to the amount of the original grant

and to the extent the proceeds permit. The Trust is able

to retain any surplus proceeds less sale costs attributable

to the equivalent loaned percentage share of the value of

the property. If there is a fall in the value of the property the

shortfall of proceeds is offset against the grant.

44

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

Social housing grant

Social housing grant (SHG) is a capital grant provided by the

Homes and Communities Agency to fully or partially fund

Registered Providers who were formerly Registered Social

Landlords when developing social housing, under S18 or

S27A of the Housing Act 1996.

Where developments have been financed wholly or partly

by Social Housing Grant the cost of those developments

has been reduced by the amount of grant receivable. When

a Social Housing Grant funded property is sold the grant

becomes ‘recyclable’ and is transferred to a recycled capital

grant fund until it is reinvested into a replacement property.

Social Housing Grant is eligible for abatement where the

final position on a low cost home ownership sale results in a

loss. In such cases the grant is released to the income and

expenditure to offset the loss. Social Housing Grant may be

repayable in certain circumstances such as when a property

is no longer used for social housing. When Social Housing

Grant becomes repayable it is included as a current liability

until it is repaid. The repayment of Social Housing Grant is

generally subordinated to the repayment of housing loans.

Fixed assets and depreciation

Freehold land is not depreciated. Depreciation of housing

properties components is charged so as to write down the

cost of the components to their estimated residual value, on

a straight-line basis, over their estimated useful economic

lives in the business. SHG is attributed to freehold land and

the structure of a property in proportion to their cost. The

depreciable amount of the structure is arrived at on the

basis of original structure cost, less the proportion of SHG

and other grants attributable to housing properties, less

residual value. The useful economic lives of the structure

are estimated to be 99 years. No SHG is attributable to

components other than the structure.

Housing properties components are depreciated from the

year following replacement year over their initial estimated

useful economic life as follows:

Major components

•§

Housing properties structure - 100 years

•§

Kitchens - 10 to 18 years

•§

Bathrooms - 30 years

•§

Electrical - 30 years

•§

Heating - 30 years

•§

Boilers - 12 years

•§

Windows and doors - 30 years

•§

Roofs - 10 to 80 years

Where any SHG attributable to the structure exceeds

the cost of the structure it is amortised over the life of

the structure and reduces the total housing structure

depreciation.

Depreciation on other fixed assets is charged on a straightline

basis over the expected useful economic lives of the

fixed assets to write off the cost less estimated residual

values at the annual rates set out below:

•§

Freehold premises - 1%

•§

Short leasehold premises - Shorter of 10 years or

life of lease

•§

Furniture and equipment - 12.5%

•§

Motor vehicles - 25%

•§

Computer equipment - 33.3%

Impairment of fixed assets

Assessing impairment requires use of estimation techniques.

In making this assessment, management considers publicly

available information, external valuations and internal

forecasts on future activity. The carrying amounts of fixed

assets are reviewed at each balance sheet date to determine

whether there is any indication of impairment. An impairment

loss is recognised in the income and expenditure account for

the amount by which the asset’s carrying amount exceeds

its recoverable amount. The recoverable amount of an

asset is the greater of its net realisable value (fair value less

selling costs) and value in use adjusted for any amount

of planned subsidy. Where schemes were assessed as

requiring a subsidy, the subsidy position on the schemes at

each balance sheet date is compared against a hurdle rate

to assess whether an impairment provision is required. The

hurdle rate is essentially the level of planned subsidy per

unit that the Group is content to commit to a scheme. An

impairment loss is recognised to the extent that the net book

value exceeds recoverable amount plus the acceptable level

of planned subsidy at the balance sheet date. In assessing

value in use, the estimated future cash flows are discounted

to their present value using our scheme assessment rate.

Notes to the financial statements | Financial Statements 2012 45


Notes to the financial statements

Year ended 31 March 2012

For assets that do not generate largely independent cash

inflows, the recoverable amount is determined for the cashgenerating

unit or group of units (“scheme”) to which that

asset belongs.

Business combinations

Where acquisitions are in substance the gifting of control of

a business to the association, the combination is treated as

a non-exchange transaction and the fair value of the gifted

assets and liabilities in the transaction is recorded as a gain

or loss in the income and expenditure account in the year

of combination.

Properties for sale

Completed properties and property under construction for

outright sale are recognised at the lower of cost and net

realisable value. Cost comprises materials, direct labour

and direct development overheads. Assessing net realisable

value requires use of estimation techniques. In making

this assessment, management considers publicly available

information and internal forecasts on future sales activity.

Net realisable value is based on estimated sales price after

allowing for all further costs of completion and disposal.

Deferred income and expenditure

Contributions to future expenditure made by third parties are

treated as deferred income. Deferred income is released to

the income and expenditure account over the period when

the expenditure to which it relates is incurred.

Pension contributions

Defined Benefit Schemes:

The Group operates a pension scheme providing benefits

based on final pensionable pay. The assets of the scheme

are held separately from those of the Group. This scheme

has been closed to new entrants.

The Group also participates in four defined benefit

pension schemes which are administered by London

Borough of Bexley, London Borough of Waltham Forest,

London Borough of Redbridge and Buckinghamshire County

Council respectively.

Pension scheme assets are measured using market values.

Pension scheme liabilities are measured using a projected

unit method and discounted at the current rate of return on a

high quality corporate bond of equivalent term and currency

to the liability. Pension scheme surpluses (to the extent

that they are recoverable) or deficits are recognised in full.

The movement in the scheme surpluses/deficits other than

cash contributed by the Group are split between operating

charges, finance items and, in the Statement of total

recognised surpluses and deficits, actuarial gains and losses.

The carrying value of any resulting pension scheme asset is

restricted to the extent that the Group is able to recover the

surplus either through reduced contributions in the future or

through refunds from the scheme.

The Social Housing Pension Scheme:

The Group also participates in the Social Housing Pension

Scheme (“SHPS”) which provides benefits based on

final pensionable pay. The assets of the scheme are held

separately from those of the Group. The Group is unable to

identify its share of the underlying assets of the scheme on

a consistent and reasonable basis and therefore, as required

by FRS 17 ‘Retirement Benefits’, accounts for the scheme

as if it were a defined contribution scheme. As a result, the

amount charged to the income and expenditure account

represents the contributions payable to the scheme in

respect of the accounting period.

Money Purchase Scheme:

The Group also participates in a defined contribution scheme

where the amount charged to the income and expenditure

account represents the contributions payable to the scheme

in respect of the accounting period.

Interest payable

Interest on borrowings is capitalised to housing properties

under construction up to the date of completion of each

scheme. The interest capitalised is either on borrowings

specifically financing a scheme or on net borrowings to the

extent that they are deemed to be financing a scheme. This

treatment applies irrespective of the original purpose for

which the loan was raised.

Provisions

The Group only provides for legal or constructive liabilities

which exist at the balance sheet date.

Taxation

The charge for taxation is based on the surplus for the year

and takes into account taxation deferred. Deferred taxation

on differences between the treatment of certain items for

accounting and taxation purposes is accounted for to the

extent that a liability or asset is expected to be payable or

recoverable in the foreseeable future.

Value added tax

The Group charges value added tax (VAT) on some of

its income and is able to recover part of the VAT it incurs

on expenditure. The financial statements include VAT on

46

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

expenditure to the extent that it is suffered by the Group

and not recoverable from HM Revenue and Customs.

Recoverable VAT arises from partially exempt activities and is

credited to the income and expenditure account.

Related parties

The Trust has taken advantage of the exemption contained

in FRS 8 ‘Related Party Disclosures’ and has therefore not

disclosed transactions or balances with entities which are

100% owned.

Joint arrangements

The Group has entered into a number of contractual

arrangements that under FRS 9 ‘Associates and Joint

Ventures’ are classed as ‘a joint arrangement that is not an

entity’. Accordingly the Group has accounted for its assets,

liabilities and cash flows in respect of those arrangements,

measured according to the terms of the agreements

governing the arrangements, and in line with the Group’s

accounting policies.

Hedge accounting

Hedge accounting is applied to financial assets and financial

liabilities only where all of the following criteria are met:

•§

At the inception of the hedge there is formal designation

and documentation of the hedging relationship and the

Group’s risk management objective and strategy for

undertaking the hedge;

•§

For cash flow hedges, the hedged item in a forecast

transaction is highly probable and presents an exposure to

variations in cash flows that could ultimately affect profit

or loss;

•§

The cumulative change in the fair value of the hedging

instrument is expected to be between 80-125% of the

cumulative change in the fair value or cash flows of the

hedged item attributable to the risk hedged (i.e. it is

expected to be highly effective);

•§

The effectiveness of the hedge can be reliably

measured; and

•§

The hedge remains highly effective on each date it is

tested. The Group has chosen to test the effectiveness of

its hedges on a quarterly basis.

The effective portion of gains and losses on derivatives used

to manage cash flow interest rate risk (such as floating to

fixed interest rate swaps) are recognised in the statement of

recognised surpluses and deficits and accumulated in the

cash flow hedge reserve. However, if the Group closes out its

position early, the cumulative gains and losses recognised in

the statement of recognised surpluses and deficits are frozen

and reclassified from the cash flow hedge reserve to revenue

reserve using the effective interest method. The ineffective

portion of gains and losses on derivatives used to manage

cash flow interest rate risk are recognised in the income and

expenditure account and disclosed separately in interest

payable and similar charges.

Although held for hedging purposes, not all of the group’s

derivatives satisfy the above criteria. In such circumstances

the derivative is classified as an asset or liability at fair value

through the income and expenditure statement.

Financial instruments

The Group categorises its financial assets and liabilities in

accordance with FRS 26 ‘Financial Instruments: Recognition

and Measurement’.

Financial assets

The Group classifies its financial assets into one of the

following categories depending on the purpose for which the

asset was acquired.

Fair value through income and expenditure:

Other than derivative financial instruments which are not

designated as hedging instruments, the Group does not have

any assets held for trading nor does it voluntarily classify

any financial assets as being at fair value through income

and expenditure.

Loans and receivables:

These assets are non-derivative financial assets with

fixed or determinable payments that are not quoted in an

active market. They are initially recognised at fair value

plus transaction costs that are directly attributable to

their acquisition or issue, and are subsequently carried at

amortised cost using the effective interest rate.

Provisions are recognised when there is objective evidence

(such as significant financial difficulties on the part of the

counterparty or default or significant delay in payment) that

the Group will be unable to collect all of the amounts due

under the terms receivable, the amount of such a provision

being the difference between the net carrying amount

and the present value of the future expected cash flows

associated with the receivable item.

Notes to the financial statements | Financial Statements 2012 47


Notes to the financial statements

Year ended 31 March 2012

Financial liabilities

The Group classifies its financial liabilities into one of the

following categories depending on the purpose for which

the liability was acquired. Other than financial liabilities in a

qualifying hedging relationship, the Group’s accounting policy

for each category is as follows:

Fair value through income and expenditure:

The Group does not hold or issue derivative instruments for

speculative purposes, but for hedging purposes. Other than

these derivative financial instruments, the Group does not

have any liabilities held for trading nor has it designated any

financial liabilities as being at fair value through income

and expenditure.

Other financial liabilities:

Bank borrowings are initially recognised at fair value net of

any transaction costs directly attributable to the issue of the

instrument. Such interest bearing liabilities are subsequently

measured at amortised cost using the effective interest rate

method, which ensures that any interest expense over the

period to repayment is at a constant rate on the balance of

the liability carried in the balance sheet. Interest expense in

this context includes the amortisation of initial transaction

costs and premia payable on redemption, as well as any

interest or coupon payable while the liability is outstanding.

Derivatives embedded in host debt contracts are not

accounted for separately where they are considered to be

closely related.

Trade payables and other short-term monetary liabilities are

initially recognised at fair value and subsequently carried at

amortised cost using the effective interest method.

48

Notes to the financial statements | Financial Statements 2012


Restoration project

at Silverdale Lodge in

Forest Hill.

Notes to the financial statements | Financial Statements 2012 49


Notes to the financial statements

Year ended 31 March 2012

2. Turnover and Operating Surplus - Group

Social housing lettings

(note 3)

Turnover

£’m

Cost of

sales

£’m

Operating

costs

£’m

2012 2011

Operating

surplus

£’m

Turnover

£’m

Cost of

sales

£’m

Operating

costs

£’m

Operating

surplus

£’m

(restated)

General needs 259.3 - (141.9) 117.4 239.7 - (150.8) 88.9

Supported housing 21.4 - (14.3) 7.1 20.6 - (19.0) 1.6

Intermediate market rent 13.1

-

(4.7) 8.4 8.7

-

(7.0) 1.7

Low cost home ownership 24.4 - (12.0) 12.4 21.4 - (14.1) 7.3

318.2 - (172.9) 145.3 290.4 - (190.9) 99.5

Other social housing

activities

First tranche low cost

home ownership sales 33.2 (23.3) - 9.9 21.4 (17.6) - 3.8

Write down on first tranche

current assets - (1.4) - (1.4) - - - -

Supporting people - - - - 0.6 - (1.0) (0.4)

Development and marketing 0.9 - (1.0) (0.1) 1.2 - (6.7) (5.5)

Non-social housing

activities

34.1 (24.7) (1.0) 8.4 23.2 (17.6) (7.7) (2.1)

Student accommodation 2.4 - (1.7) 0.7 2.3 - (1.5) 0.8

Outright sales 11.8 (11.0) - 0.8 7.9 (8.6) - (0.7)

Write down on outright

sales units - (4.0) - (4.0) - - - -

Community investment 0.2 - (4.3) (4.1) 0.3 - (4.1) (3.8)

Other 1.6 - (4.6) (3.0) 3.4 - (8.3) (4.9)

16.0 (15.0) (10.6) (9.6) 13.9 (8.6) (13.9) (8.6)

368.3 (39.7) (184.5) 144.1 327.5 (26.2) (212.5) 88.8

50

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

2. Turnover and Operating Surplus - Trust

2012 2011

Turnover

£’m

Cost of

sales

£’m

Operating

costs

£’m

Operating

surplus

£’m

Turnover

£’m

Cost of

sales

£’m

Operating

costs

£’m

Operating

surplus

£’m

(restated)

Social housing lettings

(note 3)

General needs 259.3 - (141.5) 117.8 239.7 - (151.1) 88.6

Supported housing 21.4 - (14.3) 7.1 20.6 - (19.0) 1.6

Intermediate market rent 13.1 - (4.7) 8.4 8.7 - (7.0) 1.7

Low cost home ownership 24.4 - (12.0) 12.4 21.4 - (14.1) 7.3

318.2 - (172.5) 145.7 290.4 - (191.2) 99.2

Other social housing

activities

First tranche low cost

home ownership sales 33.2 (23.8) - 9.4 21.4 (20.3) - 1.1

Write down on first tranche

current assets - (1.4) - (1.4) - - - -

Supporting people - - - - 0.6 - (1.0) (0.4)

Development and marketing 0.9 - (1.0) (0.1) 1.2 - (6.7) (5.5)

Non-social housing

activities

34.1 (25.2) (1.0) 7.9 23.2 (20.3) (7.7) (4.8)

Student accommodation 2.4 - (1.7) 0.7 2.3 - (1.4) 0.9

Outright sales 4.1 (4.0) - 0.1 2.4 (2.8) - (0.4)

Community investment 0.2 - (4.3) (4.1) 0.3 - (4.1) (3.8)

Other 1.6 - (3.1) (1.5) 3.4 - (7.6) (4.2)

8.3 (4.0) (9.1) (4.8) 8.4 (2.8) (13.1) (7.5)

360.6 (29.2) (182.6) 148.8 322.0 (23.1) (212.0) 86.9

Notes to the financial statements | Financial Statements 2012 51


Notes to the financial statements

Year ended 31 March 2012

3. Income and expenditure from lettings - Group

General

Needs

£’m

Supported

Housing

£’m

Intermediate

market rent

£’m

Low cost

home ownership

£’m

2012

Total

£’m

2011

Total

£’m

(restated)

Income from lettings

Rent receivable net of identifiable

service charges 244.1 18.5 10.4 16.3 289.3 269.6

Service charges receivable 12.4 2.9 2.3 7.8 25.4 19.7

Net rents receivable 256.5 21.4 12.7 24.1 314.7 289.3

Revenue grants received

for major repairs 1.9 - - - 1.9 -

Other income 0.9 - 0.4 0.3 1.6 1.1

Total income from lettings 259.3 21.4 13.1 24.4 318.2 290.4

Expenditure on letting activities

Management 20.7 2.5 0.9 4.6 28.7 28.9

Services 18.8 4.1 2.1 4.5 29.5 28.5

Routine maintenance 48.9 4.7 1.3 1.3 56.2 54.1

Planned maintenance 15.0 1.7 0.3 0.8 17.8 30.7

Major repairs expenditure 8.5 0.4 0.1 0.2 9.2 8.7

Bad debts 1.7 0.4 (0.4) 0.6 2.3 0.9

Depreciation of housing properties 27.4 0.3 1.8 - 29.5 30.8

Impairment of housing properties 0.6 - (1.6) - (1.0) 6.8

Other costs 0.3 0.2 0.2 - 0.7 1.5

Total expenditure on lettings 141.9 14.3 4.7 12.0 172.9 190.9

Operating surplus on lettings 117.4 7.1 8.4 12.4 145.3 99.5

Rent losses from voids (2.5) (0.4) (0.7) - (3.6) (3.8)

52

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

3. Income and expenditure from lettings - Trust

General

Needs

£’m

Supported

Housing

£’m

Intermediate

market rent

£’m

Low cost

home ownership

£’m

2012

Total

£’m

2011

Total

£’m

(restated)

Income from lettings

Rent receivable net of identifiable

service charges 244.1 18.5 10.4 16.3 289.3 269.6

Service charges receivable 12.4 2.9 2.3 7.8 25.4 19.7

Net rents receivable 256.5 21.4 12.7 24.1 314.7 289.3

Revenue grants and other income 1.9 - - - 1.9 -

Other income 0.9 - 0.4 0.3 1.6 1.1

Total income from lettings 259.3 21.4 13.1 24.4 318.2 290.4

Expenditure on letting activities

Management 20.7 2.5 0.9 4.6 28.7 28.9

Services 18.8 4.1 2.1 4.5 29.5 28.5

Routine maintenance 48.9 4.7 1.3 1.3 56.2 54.1

Planned maintenance 15.0 1.7 0.3 0.8 17.8 30.7

Major repairs expenditure 8.5 0.4 0.1 0.2 9.2 8.7

Bad debts 1.7 0.4 (0.4) 0.6 2.3 0.9

Depreciation of housing properties 27.0 0.3 1.8 - 29.1 30.4

Impairment of housing properties 0.6 - (1.6) - (1.0) 7.5

Other costs 0.3 0.2 0.2 - 0.7 1.5

Total expenditure on lettings 141.5 14.3 4.7 12.0 172.5 191.2

Operating surplus on lettings 117.8 7.1 8.4 12.4 145.7 99.2

Rent losses from voids (2.5) (0.4) (0.7) - (3.6) (3.8)

Notes to the financial statements | Financial Statements 2012 53


Notes to the financial statements

Year ended 31 March 2012

4. Surplus on disposal of fixed assets

Group

2012

£’m

Group

2011

£’m

(restated)

Trust

2012

£’m

Trust

2011

£’m

(restated)

Disposal proceeds 45.6 41.1 45.6 41.1

Grant recovered (0.2) (0.1) (0.2) (0.1)

Grant abated 0.9 1.2 0.9 1.2

Cost of disposals (29.3) (23.8) (29.3) (23.8)

Incidental sale expenses (1.3) (0.9) (1.3) (0.9)

15.7 17.5 15.7 17.5

5. Employee information

Group

2012

No.

Group

2011

No.

Trust

2012

No.

Trust

2011

No.

The average number of fulltime equivalent employees was:

Office staff and care support workers 1,003 1,012 1,003 1,012

Wardens, caretakers and cleaners 65 58 65 58

1,068 1,070 1,068 1,070

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

Trust

2011

£’m

Staff costs (for the above persons):

Wages and salaries 36.4 36.9 36.4 36.9

Social security costs 4.1 3.9 4.1 3.9

Other pension costs 4.5 4.8 4.5 4.8

45.0 45.6 45.0 45.6

54

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

5. Employee information continued

Salary banding for all employees earning over £100,000 (including salaries, performance related pay and benefits in kind but

excluding pension contributions paid by the employer and any termination payments):

Salary Bands

Group

2012

No.

Group

2011

No.

Trust

2012

No.

Trust

2011

No.

£100,000 to £110,000 6 7 6 7

£110,001 to £120,000 - 1 - 1

£120,001 to £130,000 2 2 2 2

£130,001 to £140,000 1 2 1 2

£140,001 to £150,000 1 3 1 3

£150,001 to £160,000 1 2 1 2

£160,001 to £170,000 1 - 1 -

£170,001 to £180,000 - - - -

£180,001 to £190,000 - - - -

£190,001 to £200,000 - - - -

£200,001 to £210,000 - 1 - 1

£210,001 to £220,000 1 - 1 -

13 18 13 18

Notes to the financial statements | Financial Statements 2012 55


Notes to the financial statements

Year ended 31 March 2012

6. Directors’ emoluments

The directors are defined as the members of the Board, the Chief Executive and any other person reporting directly to the

Chief Executive or the Board.

Group

2012

£’000

Group

2011

£’000

Trust

2012

£’000

Trust

2011

£’000

Aggregate emoluments payable to directors

(including benefits in kind) 1,118 1,333 1,118 1,333

Pension contributions in respect of services as directors 251 329 251 329

1,369 1,662 1,369 1,662

Emoluments payable to the highest paid director (excluding

pension contributions but including benefits in kind) 218 208 218 208

Emoluments payable to the Chief Executive (excluding pension

contributions but including benefits in kind) 218 208 218 208

The Chief Executive is an ordinary member of the L&Q pension scheme and has no individual pension arrangement (including

a personal pension) to which the Trust or any of its subsidiaries makes a contribution.

Non-executive members of the Board received emoluments during the year totalling £135,000 (2011: £124,000).

The emoluments of all directors are reviewed and agreed on an annual basis by our Governance & Remuneration Committee.

They are based on an individual assessment of pay scales prevailing the market and an assessment of performance against

our corporate objectives.

Compensation payments to three past directors for loss of office amounted to a total of £390,000 (2011: £Nil) following our

decision in 2010/11 to review our operating structure and systems.

56

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

7a. Interest receivable and similar income

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

Bank interest receivable 1.6 2.5 6.9 7.0

Other interest receivable 0.5 - 0.5 -

Gain on disposal of gilt lock 2.7 - 2.7 -

Trust

2011

£’m

4.8 2.5 10.1 7.0

7b. Interest payable and similar charges

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

On loans 86.2 86.4 85.8 86.0

Release of loan fair values on repayment

and refinancing (0.8) (0.8) - -

Interest expense on liabilities at amortised cost 85.4 85.6 85.8 86.0

Amounts in respect of financial derivatives 2.1 0.3 2.1 0.3

Less: capitalised in housing properties (17.0) (21.2) (13.9) (18.8)

Trust

2011

£’m

70.5 64.7 74.0 67.5

Interest is capitalised at an average rate of 4.9% on the Group’s borrowings required to finance housing property developments

(2011: 5.5%).

Notes to the financial statements | Financial Statements 2012 57


Notes to the financial statements

Year ended 31 March 2012

8. Surplus on ordinary activities before tax

Group

2012

£’m

Group

2011

£’m

(restated)

Trust

2012

£’m

Trust

2011

£’m

(restated)

Surplus on ordinary activities before tax

is stated after charging/(crediting)

Depreciation on housing properties 29.9 31.0 29.4 30.5

Surplus on sale of fixed assets:

- housing properties (14.4) (17.5) (14.4) (17.5)

- other (1.3) - (1.3) -

Impairment charge on fixed assets housing properties 1.3 8.2 1.3 7.5

Impairment release on fixed assets housing properties (2.1) (1.5) (2.1) -

Operating lease rentals:

- land and buildings 1.0 1.4 1.0 1.4

- office equipment and computers - 0.4 - 0.4

Depreciation on other fixed assets 2.4 1.6 2.4 1.6

Auditors remuneration:

- In their capacity of auditors 0.2 0.2 0.2 0.2

- In respect of other services - - - -

58

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

9. Tax on surplus on ordinary activities

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

UK corporation tax - - - -

Trust

2011

£’m

- - - -

Group

2012

£’m

Group

2011

£’m

(restated)

Trust

2012

£’m

Trust

2011

£’m

(restated)

Surplus on ordinary activities before tax 94.7 43.8 104.0 44.7

Surplus multiplied by 26% (2011: 28%) standard rate of UK

corporation tax 24.6 12.3 27.0 12.5

Effects of:

Exemption of charitable activities (24.6) (12.3) (27.0) (12.5)

Current tax charge for the year - - - -

Notes to the financial statements | Financial Statements 2012 59


Notes to the financial statements

Year ended 31 March 2012

10a. Tangible assets – Housing fixed properties - Group

Cost

Housing properties

under construction

Social

housing

lettings

£’m

Low cost

home

ownership

£’m

Housing properties

held for lettings

Social

housing

lettings

£’m

Nonsocial

housing

Total

Low cost

home

ownership

£’m £’m £’m

At 1 April 2011 594.8 94.3 3,444.0 371.1 12.5 4,516.7

Prior year

adjustments - - 221.7 - - 221.7

At 1 April 2011 (as

restated) 594.8 94.3 3,665.7 371.1 12.5 4,738.4

Reclassifications 12.6 (15.0) (8.8) 8.1 - (3.1)

Schemes completed

in the year (317.6) (44.2) 317.6 44.2 - -

Additions 163.7 27.8 67.3 2.4 0.4 261.6

Transfer to current

assets and

investments (5.5) - (0.2) (0.8) - (6.5)

Disposals - - (15.0) (8.0) - (23.0)

At 31 March 2012 448.0 62.9 4,026.6 417.0 12.9 4,967.4

Social Housing

Grant

At 1 April 2011 291.5 48.9 1,988.7 185.5 - 2,514.6

Reclassifications 9.9 (10.4) (1.4) 0.6 - (1.3)

Schemes completed

in the year (159.2) (18.9) 159.2 18.9 - -

Received during

year 49.1 8.9 0.2 - - 58.2

Recycled on

disposals - - (3.1) (4.1) - (7.2)

At 31 March 2012 191.3 28.5 2,143.6 200.9 - 2,564.3

60

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

10a. Tangible assets – Housing fixed properties - Group continued

Depreciation

Housing properties

under construction

Social

Housing

lettings

£’m

Low cost

home

ownership

£’m

Housing properties

held for lettings

Social

Housing

lettings

£’m

Nonsocial

housing

Total

Low cost

home

ownership

£’m £’m £’m

At 1 April 2011 - - 63.0 4.2 1.0 68.2

Prior year

adjustments - - 245.4 - - 245.4

At 1 April 2011 (as

restated)

- - 308.4 4.2 1.0 313.6

Reclassification - - (0.1) - - (0.1)

Charge for year - - 29.6 - 0.3 29.9

Eliminated in respect

of disposals - - (5.1) (0.2) - (5.3)

At 31 March 2012 - - 332.8 4.0 1.3 338.1

Impairment

At 1 April 2011 8.4 5.3 - - - 13.7

Reclassification 1.7 (3.5) - - - (1.8)

Charge for year 1.1 0.2 - - - 1.3

Release for year (2.1) - - - - (2.1)

At 31 March 2012 9.1 2.0 - - - 11.1

Net Book Value:

At 31 March 2012 247.6 32.4 1,550.2 212.1 11.6 2,053.9

At 31 March 2011

(as restated) 294.9 40.1 1,368.6 181.4 11.5 1,896.5

Notes to the financial statements | Financial Statements 2012 61


Notes to the financial statements

Year ended 31 March 2012

10a. Tangible assets – Housing fixed properties - Group continued

At 31 March 2012 the completed housing stock was

evaluated to have an open market value in the region of

£10.8 billion (2011: £10.3 billion) compared with a cost of

£5.0 billion (2011: £4.7 billion). The figure has been derived

using weighted average values of a representative sample of

the stock reviewed by Countrywide Social Housing.

Additions to new housing properties during the year include

capitalised interest of £17.0 million (2011: £21.2 million) and

capitalised direct administration costs of £6.6 million (2011:

£7.2 million). The amount of cumulative interest capitalised in

housing properties is not separately identifiable.

Total expenditure on works to existing properties during the

year amounted to £152.7 million (2011: £144.3 million) of

which £69.5 million (2011: £41.0 million) was capitalised.

The completed housing land and buildings at net book value

comprise freeholds of £2,031 million (2011: £1,874 million)

and long leaseholds of £23 million (2011: £23 million).

62

Notes to the financial statements | Financial Statements 2012


Brandon Street, SE1

Notes to the financial statements

Year ended 31 March 2012

Notes to the financial statements | Financial Statements 2012 63


Notes to the financial statements

Year ended 31 March 2012

10a. Tangible assets – Housing fixed properties - Trust

Cost

Housing properties

under construction

Social

housing

lettings

£’m

Low cost

home

ownership

£’m

Housing properties

held for lettings

Social

housing

lettings

£’m

Nonsocial

housing

Total

Low cost

home

ownership

£’m £’m £’m

At 1 April 2011 592.9 99.0 3,400.8 368.4 12.5 4,473.6

Prior year

adjustment - - 221.7 - - 221.7

At 1 April 2011 (as

restated) 592.9 99.0 3,622.5 368.4 12.5 4,695.3

Reclassifications 12.6 (15.0) (8.8) 8.1 - (3.1)

Schemes completed

in the year (317.6) (44.2) 317.6 44.2 - -

Additions 173.1 27.9 67.4 2.4 0.4 271.2

Transfer to current

assets and

investments (5.5) - (0.2) (0.8) - (6.5)

Disposals - - (15.0) (8.6) - (23.6)

At 31 March 2012 455.5 67.7 3,983.5 413.7 12.9 4,933.3

Social Housing

Grant

At 1 April 2011 291.5 48.9 1,988.7 185.5 - 2,514.6

Reclassifications 9.9 (10.4) (1.4) 0.6 - (1.3)

Schemes completed

in the year (159.2) (18.9) 159.2 18.9 - -

Received during

year 49.1 8.9 0.2 - - 58.2

Recycled on

disposals - - (3.1) (4.1) - (7.2)

At 31 March 2012 191.3 28.5 2,143.6 200.9 - 2,564.3

64

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

10a. Tangible assets – Housing fixed properties - Trust continued

Depreciation

Housing properties

under construction

Social

housing

lettings

£’m

Low cost

home

ownership

£’m

Housing properties

held for lettings

Social

housing

lettings

£’m

Nonsocial

housing

Total

Low cost

home

ownership

£’m £’m £’m

At 1 April 2011 - - 61.0 4.2 1.0 66.2

Prior year

adjustment - - 245.4 - - 245.4

At 1 April 2011 (as

restated) - - 306.4 4.2 1.0 311.6

Reclassification - - (0.1) - - (0.1)

Charge for year - - 29.1 - 0.3 29.4

Eliminated in respect

of disposals - - (5.1) (0.2)

At 31 March 2012 - - 330.3 4.0 1.3 335.6

-

(5.3)

Impairment

At 1 April 2011 6.7 5.1 - - - 11.8

Reclassification 1.7 (3.5) - - - (1.8)

Charge for year 1.1 0.2 - - - 1.3

Release for year (2.1) - - - - (2.1)

At 31 March 2012 7.4 1.8 - - - 9.2

Net Book Value:

At 31 March 2012 256.8 37.4 1,509.6 208.8 11.6 2,024.2

At 31 March 2011

(as restated) 294.7 45.0 1,327.4 178.7 11.5 1,857.3

Notes to the financial statements | Financial Statements 2012 65


Notes to the financial statements

Year ended 31 March 2012

10a. Tangible assets – Housing fixed properties - Trust continued

Additions to new housing properties during the year include

capitalised interest of £13.9 million (2011: £18.8 million) and

capitalised direct administration costs of £6.6 million (2011:

£7.2 million). The amount of cumulative interest capitalised in

housing properties is not separately identifiable.

Total expenditure on works to existing properties during the

year amounted to £152.7 million (2011: £144.3 million) of

which £69.5 million (2011: £41.0 million) was capitalised.

Completed housing land and buildings comprise Freehold of

£2,001 million (2011: £1,834 million) and long leasehold of

£23 million (2011: £23 million).

66

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

10b. Tangible fixed assets - Other fixed assets - Group

Freehold

office premises

£’m

Leasehold

office premises

£’m

Office furniture

and equipment

£’m

Computer

equipment

£’m

Motor

vehicles

£’m

Total

£’m

Cost

At 1 April 2011 26.2 2.2 3.5 7.1 0.8 39.8

Additions - - 0.1 1.1 - 1.2

Disposals (2.9) (0.3) - - (0.1) (3.3)

At 31 March 2012 23.3 1.9 3.6 8.2 0.7 37.7

Depreciation

At 1 April 2011 3.4 1.5 2.3 4.1 0.6 11.9

Charge for year 0.3 0.2 0.2 1.6 0.1 2.4

Eliminated in respect

of disposals

(0.6) (0.2) - - (0.1) (0.9)

At 31 March 2012 3.1 1.5 2.5 5.7 0.6 13.4

Impairment

At 1 April 2011 0.7 - - - - 0.7

Charge for year - - - - - -

Release in year (0.7) - - - - (0.7)

At 31 March 2012 - - - - - -

Net Book Value:

At 31 March 2012 20.2 0.4 1.1 2.5 0.1 24.3

At 31 March 2011 22.1 0.7 1.2 3.0 0.2 27.2

Notes to the financial statements | Financial Statements 2012 67


Notes to the financial statements

Year ended 31 March 2012

10b. Tangible fixed assets - Other fixed assets - Trust

Freehold

office premises

£’m

Leasehold

office premises

£’m

Office furniture

and equipment

£’m

Computer

equipment

£’m

Motor

vehicles

£’m

Total

£’m

Cost

At 1 April 2011 25.1 2.2 3.5 7.1 0.8 38.7

Additions - - 0.1 1.1 - 1.2

Disposals (2.9) (0.3) - - (0.1) (3.3)

At 31 March 2012 22.2 1.9 3.6 8.2 0.7 36.6

Depreciation

At 1 April 2011 3.4 1.5 2.3 4.1 0.6 11.9

Charge for year 0.3 0.2 0.2 1.6 0.1 2.4

Eliminated in respect of

disposals

(0.6) (0.2) - - (0.1) (0.9)

At 31 March 2012 3.1 1.5 2.5 5.7 0.6 13.4

Impairment

At 1 April 2011 0.7 - - - - 0.7

Charge for year - - - - - -

Release in year (0.7) - - - - (0.7)

At 31 March 2012 - - - - - -

Net Book Value:

At 31 March 2012 19.1 0.4 1.1 2.5 0.1 23.2

At 31 March 2011 21.0 0.7 1.2 3.0 0.2 26.1

68

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

10c. Properties held for sale

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

Low cost home ownership 33.8 48.1 33.8 48.1

Outright sale 172.9 116.3 56.4 13.4

Trust

2011

£’m

206.7 164.4 90.2 61.5

The above total includes £8.4 million (2011: £10.5 million) of completed properties available for sale, the remainder being under

construction. Properties held for sale include commercial developments held for outright sale and low cost home ownership

developments representing the first tranche proportion.

11. Debtors

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

Trust

2011

£’m

Arrears of rent and service charges

Former tenant arrears 7.2 7.4 7.2 7.4

Less: provision for bad and doubtful debts (7.1) (7.2) (7.1) (7.2)

0.1 0.2 0.1 0.2

Current tenant arrears 18.7 15.8 18.7 15.8

Less: provision for bad and doubtful debts (4.2) (3.2) (4.2) (3.2)

14.6 12.8 14.6 12.8

Social housing grant receivable 17.3 22.4 17.3 22.4

Other debtors and prepayments 83.4 103.9 81.6 96.5

Amount owing from subsidiaries - - 113.7 104.6

115.3 139.1 227.2 236.3

Included in 2012 figure for other debtors and prepayments are amounts of £57.3 million recoverable on stock transfer works

which at the point of being carried out will convert into housing fixed asset components. An equivalent amount is shown in

provisions for liabilities and charges to reflect the obligations of carrying out those works (See note 14). An estimated £31.8

million of that amount is to be recovered in more than one year.

Notes to the financial statements | Financial Statements 2012 69


Notes to the financial statements

Year ended 31 March 2012

12a. Creditors - Amounts falling due within one year

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

Housing loans 28.6 3.1 13.8 3.1

Trade creditors 27.5 31.4 10.3 13.3

Other taxation and social security 1.1 1.3 1.1 1.3

Accruals 29.1 28.1 28.5 26.3

Other creditors 48.4 46.0 40.4 39.6

Amounts due to subsidiaries - - 19.3 26.3

Trust

2011

£’m

134.7 109.9 113.4 109.9

Other creditors include £5.6 million development retention creditors (2011: £10.2 million), and £17.9 million prepaid rent (2011:

£17.4 million).

70

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

12b. Creditors - Amounts falling due after more than one year

Housing loans

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

- repayable by annual instalments 1,078.0 1,092.3 1,069.0 1,082.7

- repayable on maturity 676.7 692.5 677.2 677.9

Total housing loans 1,754.7 1,784.8 1,746.2 1,760.6

Issue costs (5.6) (6.0) (5.6) (6.0)

Net housing loans 1,749.1 1,778.8 1,740.6 1,754.6

Deferred income 3.9 3.5 3.9 3.5

Other creditors 16.8 24.9 11.9 15.1

Recycled capital grant fund (See note 13a) 33.1 23.3 33.1 23.3

Disposal proceeds fund (See note 13b) 3.1 2.4 3.1 2.4

Derivative financial instruments (See note 26) 81.2 26.5 81.2 26.5

Source of housing loans:

Trust

2011

£’m

1,887.2 1,859.4 1,873.8 1,825.4

- Banks and building societies 1,169.9 1,198.5 1,161.4 1,174.3

- Capital market issues 584.8 586.3 584.8 586.3

1,754.7 1,784.8 1,746.2 1,760.6

Notes to the financial statements | Financial Statements 2012 71


Notes to the financial statements

Year ended 31 March 2012

12b. Creditors - Amounts falling due after more than one year continued

The following is an analysis of the anticipated contractual cash flows including interest payable for the Group’s financial liabilities

on an undiscounted basis. Interest is calculated on drawn debt held as at 31 March 2012. For the purposes of this table,

debt is defined as drawn bank loans and drawn bond financing and excludes deferred finance, capitalised costs and fair value

adjustments. Floating rate interest is determined using the prevailing implied forward rates as at the balance sheet date.

As at 31 March 2012

Debt

£’m

Interest

on debt

£’m

Interest on derivative

financial instruments

£’m

Due less than one year (28.6) (77.9) (9.3) (115.8)

Between one and two years (15.9) (80.2) (9.1) (105.2)

Between two and three years (19.8) (77.7) (10.9) (108.4)

Between three and five years (136.6) (163.8) (16.9) (317.3)

In five years or more (1,559.6) (1,161.4) (53.2) (2,774.2)

Gross contractual cash flows (1,760.5) (1,561.0) (99.4) (3,420.9)

Total

£’m

As at 31 March 2011

Due less than one year (3.1) (80.1) (9.4) (92.6)

Between one and two years (28.8) (86.4) (6.9) (122.1)

Between two and three years (15.9) (92.6) (5.4) (113.9)

Between three and five years (35.1) (195.9) (6.5) (237.5)

In five years or more (1,680.7) (1,340.9) (12.7) (3,034.3)

Gross contractual cash flows (1,763.6) (1,795.9) (40.9) (3,600.4)

Total

£’m

Floating

borrowings

£’m

Fixed

borrowings

£’m

Weighted

average

interest rate

%

Weighted average

time for which

rate is fixed

Years

At 31 March 2012 1,777.7 369.8 1,407.9 4.91 20.0

At 31 March 2011 1,781.9 387.2 1,394.7 4.91 21.0

The weighted average cost of fixed rate debt was 6.23% (2011: 6.32%), and variable debt was 1.33% (2011: 1.13%)

inclusive of lending margins. Interest rates on fixed rate debt ranged from 4.43% to 12.25% on individual loans excluding

hedging activity.

72

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

13a. Recycled capital grant fund

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

At beginning of the year 23.3 42.3 23.3 42.3

Net Homebuy grant abated 8.6 7.6 8.6 7.6

Net SHG recovered (0.3) (0.9) (0.3) (0.9)

Transferred to fund during the year 5.7 7.7 5.7 7.7

Interest credited to fund 0.1 0.2 0.1 0.2

Utilised during the year (4.3) (33.6) (4.3) (33.6)

At end of the year 33.1 23.3 33.1 23.3

None of the above balances are repayable to the Homes and Communities Agency.

Trust

2011

£’m

13b. Disposal proceeds fund

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

At beginning of the year 2.4 2.2 2.4 2.2

Transferred to fund during the year 1.1 1.7 1.1 1.7

Utilised during the year (0.4) (1.5) (0.4) (1.5)

At end of the year 3.1 2.4 3.1 2.4

None of the above balances are repayable to the Homes and Communities Agency.

Trust

2011

£’m

Notes to the financial statements | Financial Statements 2012 73


Notes to the financial statements

Year ended 31 March 2012

14. Provisions for liabilities and charges

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

At beginning of the year 93.9 2.2 93.9 2.2

(Decrease)/increase in provision (31.5) 91.7 (31.5) 91.7

At end of the year 62.4 93.9 62.4 93.9

Trust

2011

£’m

Included in the provisions are major works provisions of £57.3 million (2011: £85.7 million) for works remaining to be

undertaken to improve the housing stock transferred from the London Borough of Lewisham. These provisions are reassessed

at each balance sheet date to reflect the fair value of the remaining works to be completed. An amount of £28.4 million was

spent in the year. An equivalent amount is shown in other debtors and prepayments in note 11.

15. Share capital

Shares of £1 each issued and fully paid:

Group

2012

£

Group

2011

£

Trust

2012

£

At beginning of the year 16 20 11 14

Issued during the year 1 3 1 3

Cancelled during the year (1) (7) (1) (6)

At end of the year 16 16 11 11

The share capital of the Trust consists of shares with the nominal value of £1 each which carry no rights to dividends or other

income. Shares in issue are not capable of being repaid or transferred.

When a shareholder ceases to be a member, that person’s share is cancelled and the amount paid up thereon becomes the

property of the Trust. All shareholding relates to non-equity interests.

Group shareholding includes 5 shares in subsidiary undertakings held by the Trust.

Trust

2011

£

74

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

16a. Revenue reserve

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

At beginning of the year 449.7 395.6 479.0 424.5

Prior year adjustment 17.7 14.6 (23.7) (27.3)

As restated 467.4 410.2 455.3 397.2

Actuarial (loss)/gain on pension scheme liability (5.2) 13.4 (5.2) 13.4

Surplus for the year 94.7 43.8 104.0 44.7

At end of the year 556.9 467.4 554.1 455.3

Trust

2011

£’m

16b. Cash flow hedge reserve

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

At beginning of the year (24.3) (28.3) (24.3) (28.3)

(Loss)/gain recognised through the statement of recognised

surpluses and deficits (52.6) 4.0 (52.6) 4.0

At end of the year (76.9) (24.3) (76.9) (24.3)

Trust

2011

£’m

17. Negative goodwill

Business combinations where there was a gifting of control are now accounted for as non-exchange transactions and the

fair value of the assets and liabilities in the combining entity are treated as a gain to the income and expenditure account.

This has resulted in the transfer of the negative goodwill reserve to revenue reserve through a prior year adjustment of £41.4

million (see note 27).

Notes to the financial statements | Financial Statements 2012 75


Notes to the financial statements

Year ended 31 March 2012

18. Housing stock

Homes managed

Social housing accommodation

Group

2012

No.

Group

2011

No.

Trust

2012

No.

General needs housing 46,379 45,545 46,379 45,545

Supported housing and housing for older people 4,848 4,866 4,848 4,866

Key worker accommodation 891 1,021 891 1,021

Low cost home ownership 6,578 5,817 6,578 5,817

Intermediate market rent 926 924 926 924

Leaseholders 5,396 4,611 5,396 4,611

Total social housing 65,018 62,784 65,018 62,784

Trust

2011

No.

Non-social housing accommodation

Market rent 35 39 35 39

Student accommodation 662 691 662 691

Other shared equity 2,882 3,597 2,882 3,597

Total non-social housing 3,579 4,327 3,579 4,327

Total 68,597 67,111 68,597 67,111

Housing under development 10,300 8,900 5,100 6,900

76

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

19a. Reconciliation of operating surplus to net cash inflow

from operating activities

2012

£’m

2011

£’m

(restated)

Operating surplus 144.1 88.8

Depreciation and impairment charges 29.6 39.2

Change in properties held for sale (42.3) (12.3)

Change in debtors (7.5) (11.9)

Change in creditors 3.9 3.5

Change in provision (4.5) 4.3

Net cash inflow from operating activities 123.3 111.6

19b. Reconciliation of net cash flow to movement in net debt

(Decrease)/increase in cash in the year (84.4) 10.8

Cash outflow from change in debt 3.4 4.4

Cash inflow from management of liquid resources (26.2) (80.5)

Change in net debt resulting from cash flows (107.2) (65.3)

Change in net debt resulting from non cash flows 0.8 0.8

Total changes in net debt for the year (106.4) (64.5)

Net debt at beginning of the year (1,519.1) (1,454.6)

Net debt at end of the year (1,625.5) (1,519.1)

2012

£’m

2011

£’m

Notes to the financial statements | Financial Statements 2012 77


Notes to the financial statements

Year ended 31 March 2012

19c. Analysis of changes in net debt

At 1 April 2011

£’m

Cash flow

£’m

Non cash flow

£’m

At 31 March 2012

£’m

Cash at bank and in hand 88.7 (84.4) - 4.3

Cash on deposit 174.1 (26.2) - 147.9

262.8 (110.6) - 152.2

Debt due within one year (3.1) 3.1 (28.6) (28.6)

Debt due after one year (1,778.8) 0.3 29.4 (1,749.1)

Net debt (1,519.1) (107.2) 0.8 (1,625.5)

20. Pensions

London & Quadrant Housing Trust contributes to five defined

benefit schemes:

•§

L&Q Housing Trust scheme with 136 active members

(2011: 125)

•§

London Borough of Waltham Forest scheme with 6 active

members (2011: 6)

•§

Buckinghamshire County Council scheme with 4 active

members (2011: 4)

•§

London Borough of Bexley scheme with 3 active members

(2011: 3)

•§

London Borough of Redbridge scheme with 1 active

member (2011: 1)

The London & Quadrant Housing Trust Scheme was

closed to new members during 2001. The pension cost is

assessed in accordance with the advice of an independent

professionally qualified actuary using the projected accrued

benefit method and is not materially different from that arising

from the current employer’s contribution rate. There was no

deficiency within the schemes on the Statutory Minimum

Funding Requirement as at the date of the last review.

The pension contributions payable by L&Q to the Trust

scheme during the accounting period were equal to

22.8% of pensionable salary for the accounting period as

recommended by the actuary. Surpluses and deficits are

spread over employees’ future service lives, and the pensions

charge recorded by L&Q during the accounting period was

equal to the contributions payable. The pension contributions

paid during the year for the other schemes were:

•§

London Borough of Waltham Forest scheme 12.4%

•§

Buckinghamshire County Council scheme 15%

•§

London Borough of Bexley Scheme 32.3%

•§

London Borough of Redbridge scheme 18%

The results of the schemes as set out below have been

prepared by the Trust scheme actuary using the best

estimate chosen from a range of possible actuarial

assumptions which, due to the timescale covered, may not

necessarily be borne out in practice.

78

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

20. Pensions continued

Financial Assumptions 2012 2011

Discount Rate 4.6% 5.5%

Inflation (RPI) 3.2% 3.5%

Inflation (CPI) 2.5% 3.0%

Salary Growth 3.2% 3.5%

Mortality:

•§

base table S1PXA PCA(00)

•§

improvement CMI 2011 Medium Cohort

•§

projection 0.5%LTR Year of birth approach

Note: the mortality tables have been chosen based on published research by the Continuous Mortality Investigation Bureau of

the Institute of Actuaries and Faculty of Actuaries.

Analysis of the amount charged to operating profit

Current service cost (1.4) (1.6)

Past service cost - 0.9

Total operating charge (1.4) (0.7)

Analysis of the amount credited/(charged) to other financial income/(costs)

Expected return on plan assets 5.5 5.4

Interest on plan liabilities (5.2) (5.7)

Net returns 0.3 (0.3)

2012

£’m

2011

£’m

Analysis of amount recognised in statement of total recognised surplus and deficits

Actual return less expected return on plan assets (0.5) 1.2

Experience (loss)/gain arising on the plan liabilities (0.2) 4.6

Changes in assumptions underlying the present value of the plan liabilities (4.5) 7.6

Actuarial (loss)/gain recognised (5.2) 13.4

Notes to the financial statements | Financial Statements 2012 79


Notes to the financial statements

Year ended 31 March 2012

20. Pensions continued

Movement in deficit during the year

Net deficit at beginning of the year (11.4) (26.2)

Movement in year:

Current service cost (1.4) (1.6)

Employer contributions 2.8 2.4

Past service costs - 0.9

Other financial income/(expenditure) 0.3 (0.3)

Actuarial gain/(loss) (5.2) 13.4

Net deficit at end of the year (14.9) (11.4)

2012

£’m

2011

£’m

Movement in liabilities during the year

Past service liability at beginning of the year 96.3 104.2

Service cost 1.4 1.6

Interest cost 5.2 5.7

Plan participant contributions 0.1 0.5

Past service costs - (0.9)

Actuarial (losses)/gains

- due to changes in assumptions 4.5 (7.6)

- due to experience 0.2 (4.6)

Benefits paid (2.9) (2.6)

Past service liability at end of the year 104.8 96.3

80

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

20. Pensions continued

Movement in fair value of plan assets

At beginning of the year 84.9 78.0

Expected return on assets 5.5 5.4

Actuarial (loss)/gain (0.5) 1.2

Employer contributions 2.8 2.4

Plan participant contributions 0.1 0.5

Benefits paid (2.9) (2.6)

At end of the year 89.9 84.9

2012

£’m

2011

£’m

Plan assets by class of asset (bid value)

Equities 46.4 51.6% 46.3 54.6%

Gilts 8.7 9.7% 8.7 10.2%

Corporate bonds 24.1 26.8% 20.1 23.6%

Property 8.5 9.5% 7.8 9.2%

Cash 0.8 0.9% 0.7 0.8%

Other assets 1.4 1.5% 1.3 1.6%

2012

£’m

2012

%

2011

£’m

2011

%

89.9 100.0% 84.9 100.0%

Five year history

2012

£’m

Present value of funded liabilities (104.8) (96.3) (104.2) (65.4) (72.8)

Present value of unfunded liabilities - - - - -

Total present value of liabilities (104.8) (96.3) (104.2) (65.4) (72.8)

Fair value of plan assets 89.9 84.9 78.0 55.3 65.6

Net Deficit (14.9) (11.4) (26.2) (10.1) (7.2)

2011

£’m

2010

£’m

2009

£’m

2008

£’m

Notes to the financial statements | Financial Statements 2012 81


Notes to the financial statements

Year ended 31 March 2012

20. Pensions continued

The Plan’s experience gains and losses over the year were as follows:

Difference between the expected and

actual return on plan assets

2012 2011 2010 2009 2008

(£’m) (0.5) 1.2 18.7 (14.8) (7.3)

Percentage of Plan assets (0.6)% 1.4% 24.0% (26.7)% (11.2)%

Experience gains/(losses) on plan liabilities

(£’m) (0.2) 4.6 (3.3) (2.1) 0.2

Percentage of the present value of plan liabilities (0.2)% 4.8% (3.2)% (3.2)% 0.3%

Total amount recognised in statement of

total recognised surpluses and deficits

(£’m) (5.2) 13.4 (16.5) (3.6) (1.2)

Percentage of the present value of plan liabilities (5.0)% 13.9% (15.8)% (5.5)% (1.7)%

82

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

20. Pensions continued

The Group also participates in the Social Housing Pension

Scheme (SHPS). The Scheme is funded and is contracted

out of the state scheme.

It is not possible in the normal course of events to identify

on a consistent and reasonable basis the share of underlying

assets and liabilities belonging to individual participating

employers. This is because the Scheme is a multi employer

scheme where the Scheme assets are co-mingled for

investment purposes, and benefits are paid from 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 Trustee commissions an actuarial valuation of the

Scheme every three years. The main purpose of the valuation

is to determine the financial position of the Scheme in order

to address the level of future contributions required so that

the Scheme can meet its pension obligations as they fall due.

The last formal valuation of the Scheme was performed as

at 30 September 2008 by a professionally qualified actuary

using the Projected Unit Method. The market value of the

Scheme’s assets at the valuation date was £1,527 million.

The valuation revealed a shortfall of assets compared with

the value of liabilities of £663 million, equivalent to a past

service funding level of 70%.

The Scheme Actuary has prepared an Actuarial Report that

provides an approximate update on the funding position

of the Scheme as at 30 September 2010. Such a report

is required by legislation for years in which a full actuarial

valuation is not carried out. The funding update revealed an

increase in the assets of the Scheme to £1,985 million and

indicated a reduction in the shortfall of assets compared to

liabilities to approximately £497 million, equivalent to a past

service funding level of 80%.

The Scheme’s 30 September 2011 valuation is currently in

progress and will be finalised by 31 December 2012.

Notes to the financial statements | Financial Statements 2012 83


Notes to the financial statements

Year ended 31 March 2012

21. Financial commitments

Group

2012

£’m

Group

2011

£’m

Expenditure that has been contracted for but has not

been provided for in these financial statements 789.8 477.5 607.8 370.9

Trust

2012

£’m

Trust

2011

£’m

Expenditure that has been authorised by the

Governing Board but has not yet been contracted for 532.1 802.7 225.2 448.3

1,321.9 1,280.2 833.0 819.2

The Group expects to finance contracted commitments through:

Social Housing Grant 110.6 108.7 108.3 108.7

Sales receipts 381.6 196.0 201.9 196.0

Cash at bank and undrawn loans 297.6 172.8 297.6 66.2

789.8 477.5 607.8 370.9

22. Legislative provisions

The Trust is incorporated under the Industrial & Provident Societies Act 1965 with reference 30441R and is registered with the

Homes and Communities Agency under reference L4517.

23. Commitments under operating leases

Annual commitments under operating leases are as set out below:

Operating leases which expire:

Group

2012

£’m

Group

2011

£’m

Trust

2012

£’m

In less than one year 0.1 0.6 0.1 0.6

Between one and five years 0.8 0.1 0.8 0.1

After five years 0.1 0.7 0.1 0.7

Trust

2011

£’m

1.0 1.4 1.0 1.4

84

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

24. Related party transactions

All subsidiaries as listed below are fully owned by London and Quadrant Housing Trust which is the ultimate holding entity of

these companies.

Subsidiary Status Activity

Zest Homes Limited

Quadrant Construction Services

Limited

Limited company registered

in England and Wales

Limited company registered

in England and Wales

Property development and housing

for outright sale

Construction and development services

provided to Group members

Quadrant Housing Finance Limited

Registered in England & Wales

under the Industrial & Provident

Societies Act 1965

Bond finance provided to Group members

All transactions in respect of tenant board members and other related public or commercial entities have been carried out at

arms length and under normal commercial terms.

Notes to the financial statements | Financial Statements 2012 85


Watling Place, NW6

86

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

25. Joint arrangements

The Group participates in five active joint arrangements to carry out large scale development projects and the balance sheets of

joint arrangements included as at 31 March 2012 are detailed below:

Academy

Central

£’m

Countryside

Zest

£’m

Alie

Street

£’m

Acton

Gardens

£’m

Queensland

Road

£’m

Joint arrangement

Total

£’m

Current assets

Properties held for sale 14.3 6.2 16.9 3.6 1.4 42.4

Debtors 1.0 0.1 0.3 - 0.5 1.9

Cash at bank & in hand 0.3 - 1.5 0.1 0.1 2.0

15.6 6.3 18.7 3.7 2.0 46.3

Creditors: amounts

falling due within one year (0.5) - (0.8) (0.1) (0.1) (1.5)

Total assets less current liabilities 15.1 6.3 17.9 3.6 1.9 44.8

Creditors: amounts

falling after more than one year - - (5.7) - - (5.7)

Net assets 15.1 6.3 12.2 3.6 1.9 39.1

Represented by:

Investment in Limited

Liability Partnerships 15.1 6.3 12.2 3.6 1.9 39.1

Partners

George

Wimpey

East London

Limited

Countryside

Properties

Limited

Barratt

Development

PLC Group

Countryside

Properties

Limited

Barratt

Development

PLC Group

Group interest 38% 50% 50% 50% 50%

Group voting rights 50% 50% 50% 50% 50%

Notes to the financial statements | Financial Statements 2012 87


Notes to the financial statements

Year ended 31 March 2012

26. Financial instruments and risk management

A summary of the financial instruments held by category is provided below:

Financial assets at fair value

Loans and receivables

Financial assets

2012

£’m

2011

£’m

2012

£’m

2011

£’m

Homebuy investments - - 26.8 27.7

Cash - - 152.2 262.8

Debtors - - 100.7 126.3

- - 279.7 416.8

Financial liabilities at fair value

Financial liabilities at amortised cost

Financial liabilities

2012

£’m

2011

£’m

2012

£’m

2011

£’m

Trade and other payables - - 126.8 135.3

Loans and borrowings - - 1,760.6 1,781.9

Derivatives:

•§

Designated hedges 76.9 24.3 - -

•§

Fair value through income and expenditure 4.3 2.2 - -

81.2 26.5 1,887.4 1,917.2

Valuation

All financial assets or liabilities at fair value are calculated using measurements based on inputs that are observable for the

asset either directly or indirectly from prices. All other loans and receivables are shown at historical book value.

A comparison of the book value to the fair value of the Group’s long-term borrowings at 31 March 2012 is set out below:

2012

Book value

£’m

2012

Fair value

£’m

2011

Book value

£’m

2011

Fair value

£’m

Short term debt 28.6 28.4 3.1 3.1

Long term debt 1,749.1 1,696.7 1,778.8 1,719.1

1,777.7 1,725.1 1,781.9 1,722.2

88

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

26. Financial instruments and risk management continued

Risk

The main risks arising from the Group’s financial instruments

are interest rate risk and liquidity risk.

Interest rate risk

The Group finances its operations through a mixture of

retained surpluses, grant and bank borrowings. The Group’s

interest rate management ensure that a minimum of 40% of

its drawn funds should be fixed on a long term basis,

a minimum of 20% should be kept on variable rates and

the remaining 40% is fixed, hedged, or kept at variable

rates depending on prevailing market conditions and

business need.

Cash flow hedges are entered into to hedge exposure to

the variability in cash flows attributable to movements in

GBP interest rates. Group Board has agreed that up to 80%

of total drawn floating rate debt may be fixed at any one

time. This is documented in the treasury policy allowing the

Group to enter into a GBP Interest Rate Swap contracts

whereby the Group agrees to pay interest at a fixed rate and

receive interest at a floating rate. The interest rate swaps are

designated as a hedge of the variability in the debt interest

payments due to changes in the benchmark interest rate

(LIBOR). This method reflects the risk management objective

of the hedging relationship that is to swap a series of future

variable cash flows to a fixed rate. The periods in which the

hedged variable rates of interest payments are expected to

occur are set out in the maturity analysis in note 12(b).

The Group’s cash flow interest rate risk exposure is managed

monthly and, based on sensitivity analysis simulation

demonstrates that on variable rate financial instruments

which are subject to rate changes a 0.5% increase in interest

rates would result in an additional charge to the income

and expenditure account of £1.8 million (2011: £1.8 million).

On fixed rate financial instruments a 0.5% rate reduction in

interest rates would result in a potential lost benefit of £7.0

million (2011: £7.0 million).

Liquidity risk

The Group has a policy to maintain sufficient liquidity in cash

and lending facilities to cover 15 months of operational activity.

At the year end 89% (2011: 95%) of the Group’s borrowings

were due to mature in more than five years. The liquidity risk of

each Group entity is managed centrally by the Group treasury

function on a monthly basis to adhere to Group policy.

Credit risk

Credit risk applies to all debtor balances, the majority relating

to tenant and other arrears which are reported monthly with

dedicated teams assigned to manage recovery of those

arrears. The Group fully provides for former tenant arrears

except where recovery is assessed as likely. Provision against

current tenant arrears is made based on the aged profile of

the amounts due. More than 50% of the arrears are collected

directly from local authorities in the form of housing benefits

therefore reducing the Group’s exposure to individual tenant’s

credit risk.

Notes to the financial statements | Financial Statements 2012 89


Notes to the financial statements

Year ended 31 March 2012

26. Financial instruments and risk management continued

Arrears provision

Group

2012

£’m

Group

2011

£’m

At beginning of the year 10.4 14.6 10.4 14.6

Movement in provision 0.9 (4.2) 0.9 (4.2)

Amounts written off - - - -

At end of the year 11.3 10.4 11.3 10.4

Trust

2012

£’m

Trust

2011

£’m

Arrears

Group

2012

£’m

Group

2011

£’m

Less than 30 days 10.9 4.5 10.9 4.5

30 to 60 days 3.2 2.2 3.2 2.2

60 to 90 days 2.3 1.4 2.3 1.4

More than 90 days 9.5 15.1 9.5 15.1

25.9 23.2 25.9 23.2

Trust

2012

£’m

Trust

2011

£’m

Included in the above are £7.2 million (2011: £7.4 million) of former tenant arrears which have been fully provided for.

All other sundry debtors of £2.5 million (2011: £5.2 million) have normal payment terms of 30 days and are not impaired.

90

Notes to the financial statements | Financial Statements 2012


Notes to the financial statements

Year ended 31 March 2012

27. SORP 2010 Prior year adjustment

The financial statements have been prepared in accordance

with the Statement of Recommended Practice – Accounting

by Registered Social Housing Providers Update 2010.

An adjustment has been required in respect of the

following items:

1. The adoption of component accounting has resulted in

the capitalisation of major repairs which had previously

been expensed, writing off the residual values of any

components that have been replaced and expensing the

additional depreciation arising as a consequence of the

shorter component lives. This has resulted in a net prior

period adjustment of £23.7 million.

2. Business combinations where there was a gifting

of control are now accounted for as non-exchange

transactions and the fair value of the assets and liabilities

in the combining entity are treated as a gain to the

income and expenditure account. This has resulted in

the transfer of the negative goodwill reserve to revenue

reserve through a prior year adjustment of £41.4m.

2011

Surplus for

the year

£’m

2011

Net

assets

£’m

As previously reported in the statutory financial

statements of the Group

40.7 466.8

Effect of the adoption of component accounting 5.5 (23.7)

Effect of the change of accounting for non-exchange

transactions (2.4) -

As restated 43.8 443.1

Further analysis is provided as:

Housing

Property

Cost

£’m

Housing

Property

Depreciation

£’m

Negative

Goodwill

£’m

Revenue

Reserves

£’m

Balance at 31 March 2011 – as previously stated 4,516.7 (68.2) 41.4 449.7

Adoption of component accounting 221.7 (245.4) - (23.7)

Accounting for non-exchange transactions - - (41.4) 41.4

Balance at 31 March 2011 - as restated 4,738.4 (313.6) - 467.4

28. Post Balance Sheet event

In April 2012, L&Q completed on a £250 million, 21.5 year bond issue, rated Aa2/AA- and priced at just 4.625% to support its

growth plans.

Notes to the financial statements | Financial Statements 2012 91


The West Neighbourhood

ran a programme

of summer ‘picnics in

the park’ to get

communities together

and share information.

92

Notes to the financial statements | Financial Statements 2012


Artemis, E15


Osborn House . Osborn Terrace . London SE3 9DR

Tel: 0844 406 9000 . Fax: 0800 619 0213

L&Q is an exempt charity

www.lqgroup.org.uk

© L&Q Design Studio 2012. LQ0328

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