Group Accounts 2007

2006–07

GROUP FINANCIAL

STATEMENTS

51711 Report & Accounts AW:Layout 1 5/9/07 10:28 Page 2

EAST THAMES GROUP LIMITED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2007

2

ContentsBoard members, senior staff,

auditors and solicitors 3

Report of the Board 4–5

Operating and financial review 6–11

Statement of the responsibilities

of the Board 11

Report of the auditors 12

Consolidated income and

expenditure account 13

Consolidated balance sheet 14

Consolidated cash flow statement 15

Parent income and expenditure account 16

Parent balance sheet 17

Parent cash flow statement 17

Notes to the financial statements 18–41

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3

East Thames Group Limited

Board members, senior staff, auditors and solicitors

Board

Chairman – Dr R. Chilton

Vice-Chair – Mr J. Mallender (resigned 31 March 2007)

Treasurer – Mr C. Villiers (due to retire September 2007)

Other members

Mr O. Olanrewaju (appointed Vice-Chair 1 April 2007)

Mr B. Robertson

Mr J. Norman

Mr G. McLeary (resigned 31 March 2007)

Mr C. Dankwa (resigned 31 March 2007)

Mr D. Edwards

Mr D. Goodman

Mrs L. Perham

Ms J. Holmes (appointed 1 April 2007)

Mr A. Newell (appointed 1 April 2007) (Treasurer from Sept 2007)

Ms D. Sorkin (appointed 1 April 2007)

Mr C. Ofili (appointed 1 April 2007)

Mr A. Kamalondo (resigned May 2007)

Senior staff

Group Chief Executive – Ms J. Barnes

Deputy Chief Executive – Mr M. Heys

Group Director of Development – Mr G. Pearce

Group Director of Corporate Services – Ms D. Boakye

Group Director of Business Services – Ms J. Kutner

Group Company Secretary – Mr H. Potter

Registered office

3 Tramway AvenueStratfordLONDON E15 4PN

Auditors

Grant Thornton UK LLPDaedalus HouseStation RoadCAMBRIDGE CB1 2RE

Solicitors

DevonshiresSalisbury HouseLondon Wall LONDON EC2M 5QY

Trowers and HamlinsSceptre Court40 Tower HillLONDON EC3N 4DX

Bankers

Barclays Bank plcLevel 281 Churchill PlaceCanary WharfLONDON E14 5HP

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


4

Report of the Board

The Board presents its report and audited financial statementsfor the year ended 31 March 2007.

Legal statusEast Thames Group Limited is a charity, registered under the CompaniesAct 1985 and is a Registered Social Landlord under the Housing Act 1996.On 1 April 2001 it assumed responsibility as the parent company for fourmain operating subsidiaries, East Homes Limited, East Living Limited, EastChoice Limited, and East Potential. On 31 December 2001, it assumedresponsibility as the parent company for East Street Services Limited, acompany established to undertake the Group’s non-charitable activities. On10 February 2003 East Regen Limited and East Treasury Limited wereincorporated as wholly owned subsidiaries within the Group. East RegenLimited commenced trading on 1 April 2005 and East Treasury Limited on18 March 2006. On 6 April 2006 East Choice Limited transferred its assetsand liabilities to East Homes Limited.

Principal Activities and Review of the yearThese are outlined in the Operating and Financial Review.

Performance for the yearThe Group achieved a surplus for the year of £6.9 million (2006: £4.0million) before breakage costs of £12.6 million (2006: £2.3 million) incurredin refinancing the loans portfolio. This has resulted in a deficit for the year of£5.7 million (2006: surplus £1.7 million) which, following transfers from therevaluation and designated reserves of £3.6 million (2006: £1.9 million) hasresulted in reducing revenue reserves to £51.7 million (2006: £53.8 million).Restricted, designated, and consolidated reserves total £3.4 million (2006:£5.1 million). Following the revaluation of the Group’s properties therevaluation reserve now stands at £224.4 million (2006: £220.6 million).

Post balance sheet events Arrangements are being put in place for East Street Services Limited to become a subsidiary of East Homes Limited. Other than this there havebeen no events since the year end that have had a significant effect on theGroup’s or company’s financial position.

Going concernThe Board has a reasonable expectation that the Group and the companyhas adequate resources to continue in operational existence for theforeseeable future, being a period of 12 months from the date on which thereport and financial statements were signed.

Disabled employeesApplications for employment from disabled persons are given full and fairconsideration for all vacancies, having regard to their particular aptitude andabilities. In the event of employees becoming disabled, every effort is madeto retain them in order that their employment within the organisation maycontinue. It is the policy of the Group that training, career development andpromotion opportunities should be available to all employees.

Health and SafetyThe Group takes its responsibilities for Health and Safety very seriously andhas established a training and implementation programme, led by a healthand safety committee dedicated to this topic.

Employee involvementOne of the strengths of the Group lies in the quality of its employees. Oneof the key factors in its ability to meet its objectives and its commitments toits tenants in an effective and efficient manner is the contribution of itsemployees. The Group has continued its practice of consulting and keepingemployees informed on matters affecting them and on the progress of theGroup. This is carried out in a number of ways including a formal forum forconsultation, departmental meetings and a variety of newsletters.

DonationsThe Group made charitable donations during the year of £4,620. Nodonations were given to charities of which Board members are Trustees.

PensionsThe Chief Executive is an ordinary member of the pension scheme and hasa contractual arrangement covering additional voluntary contributions(AVC’s). There are no other enhanced pension arrangements to which EastThames Group Limited or any members of the Group make a contribution.

Internal ControlsThe Board has overall responsibility for establishing and maintaining thewhole system of internal control and for reviewing its effectiveness. Thisapplies to all companies within the East Thames Group.

The Board recognises that no system of internal control can provideabsolute assurance or eliminate all risk. The system of internal control isdesigned to manage risk and to provide reasonable assurance that keybusiness objectives and expected outcomes will be achieved. It also existsto give reasonable assurance about the preparation and reliability offinancial and operational information and the safeguarding of the Group’sassets and interests.

In meeting its responsibilities, the Board has adopted a risk-basedapproach to internal controls which are embedded within the normalmanagement and governance process. This approach includes the regularevaluation of the nature and extent of risks to which the Group is exposedand is consistent with Turnbull principles as incorporated in the HousingCorporation’s circular R2-25/01: Internal Controls Assurance.

The process adopted by the Board in reviewing the effectiveness of thesystem of internal control, together with some of the key elements of thecontrol framework includes;

Identification and evaluation of key risksManagement responsibility has been clearly defined for the identification,evaluation and control of significant risks. The Group has an overall riskmanagement strategy which is reviewed annually and produces Group andindividual subsidiary risk maps which identify key risks linked to ourstrategic plan. These risks are scored in terms of impact (includingreputational image) and probability both in terms of the initial risk and theresidual risk once adequate control measures are in place. In November2006 an external review of the Group’s risk management framework andindividual risk maps was undertaken which showed that in their entirety theGroup had covered the vast majority of risks which are thought to affect thesector. Where risks were thought to have been omitted action has beentaken to incorporate these within our risk mapping process.


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There is a formal and ongoing process of management review in each areaof the Group’s activities. The process is co-ordinated through a quarterlyreporting framework to the Group Risk Management and AuditCommittee/Boards which review changes to the risk map on an ongoingbasis.

The Group Executive and Officer Risk Management Panel regularlyconsider reports on significant risks facing the Group. The Group ChiefExecutive/relevant Managing Director is responsible for reporting to therespective Board(s) any significant changes affecting key risks.

Monitoring and corrective actionA process of control self assessment and regular management reporting on control issues provides hierarchical assurance to successive levels ofmanagement and to the Board. This process continues to be developed toensure a rigorous approach and includes action for ensuring that correctiveaction is taken in relation to any significant control issues.

Control environment and control proceduresThe Board retains responsibility for a defined range of issues coveringstrategic, operational, financial and compliance issues including treasurystrategy and new investment projects. The Board has adopted the NationalHousing Federation 2004 Code of Governance – Competence andAccountability. Adherence to the code was reviewed in 2006–07 to ensurethat the Group continued to comply and was at the forefront of bestpractice. It is used as a basis for the Group’s policies with regard to quality,integrity and ethics and is supported by a framework of policies andprocedures, with which employees must comply. These cover issues suchas delegated authority, segregation of duties, accounting, treasurymanagement, health and safety, data and asset protection and fraudprevention and detection.

Information and financial reporting systemsFinancial reporting procedures include detailed budgets for the year aheadand forecasts for subsequent years. These are reviewed and approved bythe Board. The Board also regularly reviews key performance indicators toassess progress towards the achievement of key business objectives,targets and outcomes. In 2005–06 the Group introduced a balancedscorecard approach designed to measure the critical success factors of thebusiness. During the course of 2006–07 this system has continued to berefined to ensure that the Board receives the key information it needs toproperly oversee business activities.

Sources of assuranceThere are a number of internal and external sources of assurance whichhave been used in compiling this statement some of which are mentionedabove. In summary these sources are:

• Board/Group Risk Management and Audit Committee oversight of theorganisation’s business

• management assurances• management reports on operational and financial matters• risk management activity• internal audit which has been significantly strengthened during the

course of the year by bringing the service in-house and thereby allowingmore in-depth reviews of the controls in place

• quality management systems such as Chartermark and Investorsin People

• key performance indicators linked to business plans

The Board has received the Group Chief Executive’s annual report,has conducted its annual review of the effectiveness of the system ofinternal control and has taken account of any changes needed to maintainthe effectiveness of the risk management control process.

The Board confirms that there is an ongoing process for identifying,evaluating and managing significant risks faced by the Group. This processhas been in place throughout the year under review, up to the date of theannual report, and is regularly reviewed by the Board.

AuditorsRSM Robson Rhodes LLP (“Robson Rhodes”) merged its audit practicewith that of Grant Thornton UK LLP (“Grant Thornton”) with effect from 2July 2007, with the successor firm being Grant Thornton. Robson Rhodesresigned as auditors on 4 July 2007 creating a casual vacancy, which thedirectors have filled by appointing Grant Thornton. A resolution to reappointGrant Thornton as auditors of the company will be proposed at theforthcoming Annual General Meeting.

Disclosure of information to auditorsAt the date of making this report the members and directors, as set out onpage 3, confirm the following:

• so far as each member and director is aware, there is no relevantinformation needed by the Group’s auditors in connection with preparingtheir report of which the Group’s auditors are unaware, and

• each member and director has taken all the steps that they ought to havetaken as a member or director in order to make them aware of anyrelevant information needed by the Group’s auditors in connection withpreparing their report and to establish that the Group’s auditors areaware of that information.

The Report of the Board was approved by the Board on 8 August 2007 andsigned on its behalf by:

Henry Potter – Group Company Secretary


6

Operating and financial review

Principal activities

East Thames Group Limited

The Group is a Registered Social Landlord and a registered charity. Itsprincipal activities are the provision of central services to its operatingsubsidiaries, development of social housing and asset management. Thethree main operational subsidiaries are:

• East Homes Limited – a Registered Social Landlord and a charitableIndustrial and Provident Society that provides social housing includinglow-cost home ownership;

• East Living Limited – a charitable Industrial and Provident Society thatprovides care and supported housing; and

• East Potential – a registered charity that manages foyers andneighbourhood regeneration programmes on behalf of the Group.

Four other subsidiaries provide services for the Group:

• East Foundation Limited – a registered charity established in 2006 thatfunds projects to help build sustainable communities;

• East Regen Limited – a non-charitable company established in 2003that provides management and development services;

• East Street Services Limited – a non-charitable company establishedin 2001 that undertakes commercial activities; and

• East Treasury Limited – a non-charitable company established in 2003that raises finance and provides treasury services.

The first parent was formed in 1979 by merger of three housing associationsin east London. Its first subsidiary, East Choice Limited, was formed in 1981.Two further subsidiaries, currently named East Living Limited and EastPotential, became subsidiaries in 1995 and 1997 respectively.

East Thames Group Limited was formed in 2001 as a new Group parent,with the former parent becoming what is today known as East HomesLimited. East Choice merged with East Homes in 2006.

The Group is a major developer of new affordable housing and is one of theassociations selected by the Housing Corporation as development partners.During the year, we completed 544 new homes; a further 1,167 were on site.

Lend Lease and its partners First Base and East Thames Group wereselected by London & Continental Railways and the Olympic DeliveryAuthority in March 2007 as preferred Development Partner for Zones 2-7 of Stratford City – a remit which includes the Athletes Village.

East Foundation started its activities during the year, providing grants insupport of projects which help to relieve social exclusion, enhance thesustainability of neighbourhoods and improve the quality of life within them.

East Homes LimitedDuring its first full year since merging with East Choice, we havesuccessfully reorganised our staffing structures. We estimate that this hasresulted in efficiency savings of the order of £400,000. There are now tworegional operations, each with a Regional Committee, which has improvedlocal accountability.

We continue to make progress towards our challenging growth targets, with544 new homes handed over by the Group’s development team during theyear. These included Tanner Street, the Housing Design Award winningdevelopment of 165 mixed tenure homes in Barking, and the associated 10-storey landmark development in Queens Road.

Our biggest estate will be ‘East One’. This is a 524 home project at HarfordStreet, Stepney, currently being developed by East Thames Group andBellway Thames Gateway South. It will be a mixed tenure estate, involvingNewlon Housing Trust and LABO, a BME-led housing association. The first25 homes to be completed were handed over to LABO in March.

Other significant completions during the year included Kitchen Court, a 40 home development at the Leyton Orient football ground in east London,and Ranelagh Road in Stratford. Ranelagh Road has a mixture of generalneeds homes, move-on flats for young people leaving East Potential’s foyersand a learning disabilities scheme managed by East Living.

East Living LimitedWe opened a major new scheme in Ranelagh Road in Newham for peoplewith learning disabilities. We also won the contract to provide care servicesat Paines Brook Court in Havering. The scheme has 64 self-contained flatsfor older people with physical, mental or learning disabilities.

In line with the ethos of Care in the Community, we introduced our HOLD(Home Ownership for people with Learning Disabilities) project. Thisenabled two scheme residents to each part buy, part rent a home of theirown within the community. We are looking to expand HOLD in the future.

We continue to seek ways to improve our services and the value for moneythey offer. We have started a trial of high technology equipment which mayenable us to provide a better service, for example door mats which notifystaff when someone goes into or out of a flat. This system will alert staff if aresident is out for an unexpectedly long period.

A review of our services and their provision resulted in savings of around£200,000 per year. We also started a domiciliary care service which willimprove the value for money offered by our support service for people livingin the community. We involve residents as much as we can and, followingresident involvement in two of our conferences, we are proposing a‘Customer Panel’ to help ensure our services continue to meet the needs oftheir users.

East PotentialOur first foyer, Focus E15, opened in Stratford in 1996. To celebrate theanniversary, we worked with young people to prepare and deliver two majorshows, held in Stratford Circus and East Wintergarden, Canary Wharf. Theyoung people worked with help and advice from a range of professionalartists to devise the shows.

Towards the end of the financial year, we were delighted to receiveconfirmation of a Housing Corporation grant of £14 million for a new foyer inBarking. The foyer, which we have been planning for a while, is now underconstruction. It will accommodate and support up to 116 disadvantagedyoung people at a time.


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Strategies

• Continue to find innovative solutions to meetspecific customer and housing needs and toimprove the quality of our current services

• Deliver sustainability in the neighbourhoods inwhich we operate

• Help meet the needs of the large and growing childand youth population in east London

• Continue to develop a wide range of housing fordifferent income groups, including giving ourexisting residents more opportunities to move tonew homes as their needs change

• Identify and pursue strategic opportunities forgrowth and stock transfer across east London and Essex

• We will improve our performance by givingopportunities to residents to define servicestandards and priorities, provide better value formoney in all our services, set developmentstandards for new homes and the improvement ofexisting homes, influence our community andeconomic programmes and make ourneighbourhoods a better place to live

• Actively seek ways of getting feedback from thoseresidents and service users whose voices are notnormally heard

• Work with strategic and local agencies to helpthem achieve their objectives in theneighbourhoods in which we work

• Continue to develop effective partnerships,achieving more as a result of these

Strategies

• We will contribute to key local partnerships andplanning forums

• Target and shape regional and national agendas to benefit our neighbourhoods

• Build local community networks to inform, shape,and reinforce local agendas

• Promote innovative solutions using flagshipprojects, services and research

• Develop staff and Board members as ambassadors

• We will communicate effectively so staffunderstand and are aware of what we do, share our future plans and the issues that effectour business

• Further develop staff to maximise their skills andcreativity in an organisation with a culture ofintegrity, to be positive agents for change, promotethe advantages of working in a multi-cultural area,and learn and innovate using internal and externalknowledge and experience

• Create a workplace culture that makes staff feel asspecial as the group expects them to make ourcustomers feel

• Maintain a working environment conducive toattracting and retaining the highest quality staff

• Optimise the use of Group assets and revenuestreams to ensure the most effective investment innew development, our existing stock and services

• Improve the manner in which we manage riskwhile continuing to be risk aware

• Exploit the knowledge, skills and experiences fromacross the Group to deliver our mission

• Continue to improve business performance andefficiency

• Continue to review our governance structures asappropriate to ensure that they are utilised to best effect

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

As part of our community regeneration role, we have set up a SustainableNeighbourhood team. When new developments are proposed, the teamworks with the Group’s development department to explore and seek toresolve service and other issues in the wider neighbourhood.

We are determined that the 2012 Olympics should leave a lasting legacy forlocal communities. To this end, we are expanding projects that empowersocially excluded residents. These include education, training andemployment opportunities which helped more than 300 local people during2006–07.

Objectives and strategiesOur mission is “to make a positive and lasting contribution to theneighbourhoods in which we work”. We have five key aims underpinningthis mission and key actions have been developed to ensure that we areable to deliver against this strategic plan.

Key aims

• To provide highquality homesand servicesthat meet theneeds of ourcustomers.

• To ensure thatour customerscan shapeour services.

Key aims

• To influencelocal regionaland nationalthinking, policiesand strategies

• Developingwell-informed,committed, andenthusiastic staff

• Actively usingour financial andorganisationalstrength


8

Operating and financial review (continued)

Performance, development and continuous improvementThe Group Executive and the Board have put in place a comprehensiveprocess to monitor the performance of the Group against a set of keyresults, critical success factors and key performance indicators. The resultsare summarised on a Group ‘Master Performance Dashboard.’ The Boardagrees targets each year that are designed to manage development anddeliver continuous service improvement. The Board receives aperformance management pack monthly which indicates the Group’sperformance against targets and simply and effectively highlights thecurrent performance and the trend, giving each area a “green”, “amber”, or“red” assessment. Those areas assessed as “red” are monitored closelyand are subject to a detailed review by the Board each quarter.

Risks and uncertaintiesThe Group Board and Group Risk Management and Audit Committee use anumber of internal and external processes to manage risk.

Management assurances Annually senior managers complete an internal controls sign offmemorandum confirming their understanding of their objectives andcompliance with internal control procedures.

Management reports on operational and financial mattersBoards and the Committee receive regular reports on business planningincorporating long term financial plans and forecasts, treasury managementpolicies and strategies, including cash flow monitoring and control andinterest management. Policies and strategies have also been consideredon a range of issues ranging from human resources and diversity issues torisk management. Satisfaction survey information derived from residentsand employees has also been considered.

Risk Management ActivityDuring the year the Board considered our comprehensive Group RiskManagement Strategy, a Group wide risk map and individual subsidiary riskmaps. The risk maps assess risk on the basis of impact (includingreputational risk) and probability. A system of measuring residual risk scoresis used (i.e. those scores after controls are in place) and all scores over 100are reviewed by the Group Risk Management and Audit Committee andindividual Boards on a quarterly basis.

Officer Risk Management PanelAn Officer Risk Management Panel is also in place which considers allitems of risk in terms of new activity and also any development schemeswhich fall outside of the agreed template.

Financial position

ResultsThe results of the key operations are set out below:

Operating Turnover Surplus

2007 2006 2007 2006restated

£m £m £m £m

General needs 36.2 35.8 9.3 11.6

Special needs accommodation 17.7 17.2 0.7 0.2

Shared ownership accommodation 6.6 4.7 1.9 0.7

Temporary accommodation 13.3 16.1 (0.1) (0.1)

Properties developed for sale toother Registered Social Landlords 7.8 5.6 – –

Other 3.0 1.6 (3.7) (2.8)

Total 84.6 81.0 8.1 9.6

The Group income and expenditure account and balance sheet are set outon pages 13 and 14 and the following paragraphs highlight key features ofthe Group’s financial position at 31 March 2007. The reason for therestatement of the comparative figures is explained in the AccountingPolicies note 1, n(i).

Accounting policiesThe Group’s principal accounting policies are set out on pages 18 and 19 ofthe financial statements. The policies that are most critical to the financialresults relate to accounting for housing properties and include:capitalisation of interest and development administration costs; deduction ofcapital grant from the cost of assets; housing property depreciation; andtreatment of shared ownership properties. Each of these policies hasremained unchanged during the period under review.

Housing propertiesAt 31 March 2007 the Group owned or managed 11,300 housing properties(2006: 11,404). The valuation shown in the balance sheet of propertiesowned by us (after depreciation and capital grant) was £565.0 million(2006: £517.7 million). The Board appointed professional valuers to valuethe Group’s housing properties as at 31 January 2007.

Our investment in housing properties this year was funded through amixture of social housing grant, loan finance and working capital. TheGroup treasury policies are considered below.


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Pension costsThe Group participates in two pension schemes, the Social HousingPension Scheme (SHPS) and for a small number of people, the NHSpension scheme for England and Wales. Note 8 to the accounts gives a fullexplanation of the workings of the schemes and their funding position.

At the end of the year there were 318 members of SHPS compared to 311at 31 March 2006. SHPS is a multi-employer defined benefit scheme. Aswith many other schemes of this type, there is a funding deficit which mayrequire additional contributions in future years in order to meet its liabilities.The Group has been notified that its share of the estimated employer debt ifthe scheme were to have ceased on 31 March 2007 is £27.2 million. This isonly an indication of the potential debt at that point in time given certainassumptions, but nevertheless indicates that there may well be significantcosts of supporting benefits for existing and new members in the future. Inorder to start to make up for the deficit, contributions to SHPS for allmembers were increased by 4.4% of pensionable salary from 1 April 2007.East Thames Group decided to increase its employer contributions by 2.4%to 14.1% with employees bearing the balance of the increase.

The Group is actively considering a range of options in order to containfuture costs of the provision of pensions to its employees. It is consultingwith employees on this issue.

Capital structure and treasury policyDuring the previous year, new loan arrangements between East TreasuryLimited (a member of East Thames Group Limited) Nationwide, Barclaysand Barclays Syndicate totalling £400 million were agreed. The purpose of this facility is to refinance the vast majority of our existing loans portfolioand to provide significant funds for development and other new business initiatives.

At 31 March 2007 the Group had borrowed £295 million for this purpose. Of this, £289 million is from the new facility. Interest is payable on the newfacility borrowings at fixed rates varying from 4.02% to 4.135% on £81.5million and at rates linked to LIBOR on the remaining £207.5 million.

A HACO £25 million bond for which interest was fixed at 10.625% andTHFC loans totalling £20 million were repaid in 2006–07 as part of therefinancing of existing loans. The cost of breaking these loans makes up the majority of the Exceptional Item of £12.6 million shown in the accounts.

A new treasury management policy has been put in place this year. Itcontains adequate controls to protect the Association’s assets. The purposeof treasury management within East Thames Group is to minimise the costof borrowing and to reduce exposure to risks.

2007 2006

Maturity of loans £m £m

Within one year 5.0 0.7

Between one and two years – 1.3

Between two and five years 0.1 2.5

After five years 291.4 246.2

Total 296.5 250.7

There are further details of debts in Note 20 to the accounts.


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Operating and financial review (continued)

Group highlights, five-year summary

For the year ended 31 March 2007 2006 2005 2004 2003

restated

Group income and expenditure account (£’000)

Total turnover 84,635 81,021 72,584 66,700 55,521

Income from lettings 73,819 73,837 71,071 63,758 53,550

Operating surplus 8,129 9,574 9,563 10,555 11,896

Exceptional item – Breakage costs (12,579) (2,340) – – –

Surplus for the year transferred to reserves (5,662) 1,703 4,269 8,128 4,644

Group balance sheet (£’000)

Housing properties, net of depreciation 1,039,597 966,025 885,217 828,183 696,464

SHG and other capital grants (474,613) (448,291) (439,274) (424,544) (411,860)

Housing properties, net of depreciation and grants 564,984 517,734 445,943 403,639 284,604

Other fixed assets 25,934 15,158 11,709 8,515 5,806

Fixed assets net of capital grants and depreciation 590,918 532,892 457,652 412,154 290,410

Net current (liabilities)/assets (7,726) 9,593 (14,909) (4,495) 17,726

Total assets less current liabilities 583,192 542,485 442,743 407,659 308,136

Loans (due over one year) 289,678 249,115 167,361 153,734 165,513

Provision for liabilities and charges – 100 100 100 100

Other long-term liabilities 14,052 13,828 10,234 11,045 7,792

Reserves : restricted 99 1,784 1,791 2,912 3,240

: designated 3,011 3,011 3,492 1,953 2,069

: revenue 51,966 54,031 50,432 45,779 37,185

: revaluation 224,386 220,616 209,333 192,136 92,237

: total 279,462 279,442 265,048 242,780 134,731

583,192 542,485 442,743 407,659 308,136

Accommodation figures

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

Social housing 9,809 9,810 9,798 9,769 9,551

Non-social housing 1,491 1,594 1,503 1,421 1,436

11,300 11,404 11,301 11,190 10,987


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2007 2006 2005 2004 2003restated

Statistics

Surplus for the year before exceptional item as % of turnover 8.2% 5.0% 6.5% 12.2% 8.4%

Surplus for the year before exceptional item as % of income from lettings 9.4% 5.5% 6.6% 12.7% 8.7%

Rent losses (voids and bad debts as % of rent and service charges receivable) 3.9% 3.5% 3.8% 3.7% 5.5%

Rent arrears (gross arrears as % of rent and service charges receivable) 6.1% 6.7% 6.6% 7.6% 11.5%

Interest cover (surplus before interest payable divided by interest payable and capitalised interest) 1.7 1.4 1.3 1.9 1.4

Liquidity (current assets divided by current liabilities) 0.8 1.4 0.6 0.8 2.0

Gearing (total loans as % of capital grants plus reserves) 39.5% 34.9% 25.7% 23.0% 28.4%

Total reserves per home owned £27,228 £30,267 £27,517 £24,903 £13,775

The reason for the restatement of the 2006 comparative figures is explained in the Accounting Policies.

Statement of the responsibilities of the Board

Statement of the responsibilities of the Board for the report and financial statementsThe Board is responsible for preparing the report and financial statementsin accordance with applicable law and United Kingdom Generally AcceptedAccounting Practice.

The Companies Act 1985 and registered social landlord legislation in theUnited Kingdom require the Board to prepare financial statements for eachfinancial year which give a true and fair view of the state of affairs of theGroup and the company at the end of the year and of the surplus or deficitof the Group and the company for the year then ended.

In preparing those financial statements the Board is required to:

• select suitable accounting policies and apply them consistently;

• make judgements and estimates that are reasonable and prudent; and

• follow applicable United Kingdom Accounting Standards and theStatement of Recommended Practice: “Accounting by Registered SocialLandlords” (Update 2005), subject to any material departures disclosedand explained in the financial statements.

The Board is responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theGroup and the company and enable it to ensure that the financialstatements comply with the Companies Acts 1985, paragraph 16 ofSchedule 1 to the Housing Act 1996 and the Accounting Requirements forRegistered Social Landlords General Determination 2006. It is alsoresponsible for safeguarding the assets of the Group and the company andhence for taking reasonable steps for the prevention and detection of fraudand other irregularities.

The Board is responsible for ensuring that the Report of the Board isprepared in accordance with the Statement of Recommended Practice:“Accounting by Registered Social Landlords” (Update 2005).

The Board is responsible for the maintenance and integrity of the corporateand financial information on the Group’s website. Legislation in the UnitedKingdom governing the preparation and dissemination of the financialstatements and other information included in annual reports may differ fromlegislation in other jurisdictions.


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We have audited the Group and association financial statements of EastThames Group Limited for the year ended 31 March 2007, which comprisethe Group and association income and expenditure accounts, the Groupand association balance sheets, the Group and association cash flowstatements, the Group statements of total recognised surpluses and deficitsand the related notes. These financial statements have been preparedunder the accounting policies set out therein.

This report is made solely to the association’s members, as a body, inaccordance with regulations made under section 235 of the Companies Act1985. Our audit work has been undertaken so that we might state to theassociation’s members those matters we are required to state to them in anauditors’ report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than theassociation and the association’s members as a body, for our audit work,for this report, or for the opinions we have formed.

Respective responsibilities of the board and auditors

The responsibilities of the board for preparing the report and financialstatements in accordance with applicable law and United KingdomAccounting Standards (United Kingdom Generally Accepted AccountingPractice) are set out in the statement of responsibilities of the Board for thefinancial statements.

Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give atrue and fair view and are properly prepared in accordance with theCompanies Act 1985, the Housing Act 1996 and the AccountingRequirements for Registered Social Landlords General Determination 2006.

We also report to you if, in our opinion, the Report of the Board is consistentwith the financial statements. The information given in the Report of theBoard includes the specific information presented in the Operating andFinancial Review that is cross-referred from the Business Review section ofthe Report of the Board.

In addition, we report to you if, in our opinion, the association has not keptproper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by lawregarding directors’ remuneration and other transactions is not disclosed.

We read the other information accompanying the financial statements andconsider whether it is consistent with the audited financial statements. Theother information comprises only the Report of the Board and the Operatingand Financial Review. We consider the implications for our report if webecome aware of any apparent misstatements or material inconsistencieswith the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards onAuditing (UK and Ireland) issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amountsand disclosures in the financial statements. It also includes an assessmentof the significant estimates and judgements made by the board in thepreparation of the financial statements, and of whether the accountingpolicies are appropriate to the Group’s and association’s circumstances,consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financialstatements are free from material misstatement, whether caused by fraudor other irregularity or error. In forming our opinion we also evaluated theoverall adequacy of the presentation of information in the financialstatements.

Opinion

In our opinion:

• the financial statements give a true and fair view, in accordance withUnited Kingdom Generally Accepted Accounting Practice, of the state ofaffairs of the Group and association as at 31 March 2007 and of theGroup’s deficit and the association’s surplus for the year then ended;

• the financial statements have been properly prepared in accordance withthe Companies Act 1985, the Housing Act 1996 and the AccountingRequirements for Registered Social Landlords General Determination2006; and

• the information given in the Report of the Board is consistent with thefinancial statements.

Grant Thornton UK LLP

Chartered Accountants and Registered Auditors

Cambridge, England

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


13

Consolidated income and expenditure account for the year ended 31 March 2007

restated

2007 2006

Note £’000 £’000

Turnover: continuing activities 2 84,635 81,021

Operating costs 2 (76,506) (71,447)

Operating surplus: continuing activities 8,129 9,574

Surplus on sale of fixed assets – housing properties 4 8,828 4,357

Net interest payable and similar charges 7 (10,040) (9,888)

Exceptional item – Breakage costs 7 (12,579) (2,340)

(22,619) (12,228)

(Deficit)/surplus for the financial year (5,662) 1,703

The notes on pages 18 to 41 form part of these financial statements. The reason for the restatement of the comparative figures is explained in Note 1 Accounting Policies (n)(i).

2007 2006

Note £’000 £’000

(Deficit)/surplus for the financial year (5,662) 1,703

Unrealised surplus on revaluation of housing properties 24 5,682 12,691

Total recognised surpluses for the year 20 14,394

2007 2006

£’000 £’000

Reported (deficit)/surplus on ordinary activities (5,662) 1,703

Excess of actual depreciation over historical cost depreciation 461 488

Realisation of property revaluation surpluses 1,451 920

Historical cost (deficit)/surplus on ordinary activities before taxation (3,750) 3,111

Historical cost (deficit)/surplus for the year after taxation (3,750) 3,111

2007 2006

£’000 £’000

Opening total funds 279,442 265,048

Total recognised surpluses relating to the year 20 14,394

Closing total funds 279,462 279,442

Reconciliation of movements in Group’s funds for the yearended 31 March 2007

Consolidated statement of total recognised surpluses and deficits for the year ended 31 March 2007

Note of historical cost surpluses and deficits for the year ended 31 March 2007


2007 2006

Note £’000 £’000

Tangible fixed assets

Housing properties at valuation 10 564,984 517,734

Other fixed assets 11 25,934 15,158

590,918 532,892

Investments

Cost of HomeBuy and Starter Home Initiative 10 31,706 35,945

Less: Social Housing Grant 10 (31,706) (35,945)

– –

Current assets

Properties for sale 13 12,514 18,924

Debtors 14 7,271 6,662

Investments 12 – 1,685

Cash at bank and in hand 15 8,199 7,634

27,984 34,905

Creditors: amounts falling due within one year 16 (35,710) (25,312)

Net current (liabilities)/assets (7,726) 9,593

Total assets less current liabilities 583,192 542,485

Creditors: amounts falling due after more than one year 17 303,730 262,943

Provision for liabilities and charges 22 – 100

303,730 263,043

Capital and reserves

Share capital 23 – –

Revenue reserve 24 51,703 53,768

Designated reserve 24 3,011 3,011

Restricted reserve 24 99 1,784

Consolidation reserve 24 263 263

Revaluation reserve 24 224,386 220,616

Consolidated funds 279,462 279,442

583,192 542,485

The financial statements were approved by the Board on 8 August 2007 and signed on its behalf by:

Robert Chilton Charles Villiers Henry Potter

Chairman Treasurer Group Company Secretary

14

Consolidated balance sheet at 31 March 2007


15

2007 2006

Note £’000 £’000

Net cash flow from operating activities 27 19,221 5,277

Returns on investments and servicing of finance

Interest received 525 1,105

Interest paid (12,677) (13,177)

Breakage costs paid (13,860) (2,340)

Net cash outflow on servicing of finance (26,012) (14,412)

Capital expenditure and financial investments

Purchase and construction of housing properties (78,005) (101,629)

Purchase of other fixed assets (11,714) (4,852)

Social Housing Grant received 15,526 26,643

Social Housing Grant repaid (3,737) –

Other capital grants received 1,089 381

Other capital grants repaid (1,575) –

Proceeds of first tranche sales 19,120 11,056

Proceeds of HomeBuy 1,473 –

Sales of housing properties 17,255 11,459

Sales of Starter Homes Initiatives 3,799 –

Proceeds from disposal of investments 1,685 –

Cash outflow from investing activities (35,084) (56,942)

Cash outflow before financing (41,875) (66,077)

Financing

Housing loans received 91,724 197,342

Housing loans repaid (45,828) (128,032)

Loan issue costs paid (1,020) (437)

Cash inflow from financing 28 44,876 68,873

Corporation Tax – 2

Increase in cash in the year 28 3,001 2,798

Consolidated cash flow statementfor the year ended 31 March 2007


16

2007 2006

Note £’000 £’000

Turnover: continuing activities 2 18,011 14,764

Operating costs 2 (17,123) (12,595)

Operating surplus: continuing activities 888 2,169

Net interest receivable 7 – –

Surplus on ordinary activities 888 2,169




Parent income and expenditure account for the year ended 31 March 2007


17

2007 2006

Note £’000 £’000

Net cash flow from operating activities 27 13,020 2,424

Capital expenditure and financial investments

Purchase of fixed assets (10,888) (2,939)

Capital grant received – 381

(10,888) (2,558)

Increase/(decrease) in cash in the period 28 2,132 (134)

Parent cash flow statementfor the year ended 31 March 2007

2007 2006

Note £’000 £’000

Tangible fixed assets 11 22,407 12,483

Current assets

Debtors 14 10,920 38,289 Creditors: amounts falling due within one year 16 (27,326) (45,659)

(16,406) (7,370)

Total assets less current liabilities 6,001 5,113

Capital and reserves

Share capital 23 – –

Revenue reserve 24 6,001 3,428

Restricted reserve 24 – 1,685

Designated reserve 24 – –

6,001 5,113




Parent balance sheet at 31 March 2007


18

1. Accounting Policies

(a) Basis of accountingThe financial statements of the parent company and the Group are preparedunder the historic cost convention (as amended by the revaluation of theGroup’s housing assets) in accordance with the Companies Act 1985, theHousing Act 1996 and comply with Accounting Requirements for RegisteredSocial Landlords General Determination 2006. Applicable accountingstandards and statements of recommended practice have been followed.

Basis of consolidationThe Group financial statements consolidate the financial statements of EastThames Group Limited and its operating subsidiaries East Homes Limited,East Foundation Limited, East Street Services Limited, East Living Limited,East Potential, East Regen Limited and East Treasury Limited.

(b) TurnoverTurnover represents rental and service charge income from tenants,management fees, sales of properties developed for other RegisteredSocial Landlords and certain revenue grants.

(c) Housing propertiesHousing properties represent the Group’s investment in properties for rentand properties subject to shared ownership leases.

Completed housing properties held for letting are stated at Existing UseValue for Social Housing (EUV-SH). Shared ownership properties arestated at Existing Use Value for Social Housing (EUV-SH) less the NetPresent Liability to repay Social Housing Grant (SHG). Housing propertiesunder construction are stated at cost less related SHG and other capitalgrants.

Cost comprises the cost of acquiring land and buildings, developmentcosts, rehabilitation costs, attributable interest charges incurred during thedevelopment period and the capital element of expenditure incurred inrespect of the major repair programmes of stock modernisation and estateimprovement. The capital element of expenditure is determined by decidingif the works result in an enhancement of economic benefits of the asset –eg, an increase in the net rental stream over the life of the property. Anincrease in the net rental stream may arise through an increase in the netrental income, a reduction in future maintenance costs or a significantextension of the life of the property.

Development and modernisation costs include the capitalisation of theGroup’s own directly related employee costs from the direct labour forceinvolved in the development process and directly attributable developmentmanagement costs and other direct costs. The cost of shared ownershipproperties is stated net of proceeds of first tranche sales. Land donated bypublic authorities is brought into cost at market value at the time of the donation.

d) Depreciation of housing propertiesFreehold land, shared ownership properties and assets held in the courseof completion are not depreciated. Depreciation is charged so as to writedown the value of freehold housing properties other than freehold land totheir estimated residual value on a straight line basis over their remainingexpected useful economic lives as follows:

Houses 100 to 150 years

Low level flats 100 to 150 years

Blocks over four floors 60 years

These useful economic lives apply equally to the Group’s rented and carestock of housing properties. Shared ownership properties are notdepreciated because the shared owner has significant equity in the propertyand is responsible for its maintenance.

(e) Social Housing GrantSocial Housing Grant (SHG) is payable by the Housing Corporation and isutilised to reduce the capital costs of a scheme to a value which may besupported by rental income. Where SHG is received in advance ofaggregate expenditure it is disclosed as a short-term creditor.

When the SHG is retained following the disposal of property, it is shownunder the Disposal Proceeds or Recycled Capital Grant Funds in creditors.SHG is repayable in certain circumstances. When SHG becomesrepayable it is included as a current liability until it is repaid. The repaymentof SHG is generally subordinated to the repayment of housing loans, asagreed with the Housing Corporation.

(f) Other grantsOther grants include grants from local authorities and other organisations,primarily the London Docklands Development Corporation. Capital grantsare treated in the same way as SHG and include amounts attributable toland donated by public authorities. Grants in respect of revenueexpenditure are included in the income and expenditure account in thesame period as the expenditure to which they relate.

(g) Properties for SaleCompleted properties for outright sale and properties under constructionare valued at the lower of cost and net realisable value. Cost comprisesmaterials, direct labour and direct development overheads. Net realisablevalue is based on estimated sales price after allowing for all further costs ofcompletion and disposal.

Notes to the financial statements 31 March 2007


19

(h) Other tangible fixed assetsService charge assets and other fixed assets, such as office buildings, arestated at cost less depreciation. Depreciation is provided evenly on the costof service charge assets and other tangible fixed assets to write them downto their estimated residual values over their expected useful lives on astraight line basis at the following rates:

Freehold offices 4%

Lifts 4%

Office furniture and improvements 14.3%

Service equipment 20%

Motor vehicles 25%

Computer equipment 33.3%

Major software 10%

(i) PensionsThe Group participates in the Social Housing Pension Scheme final salarypension scheme and retirement benefits to Group employees are funded bycontributions from all participating employers and employees in the scheme.Payments are made to a fund operated by the Pensions Trust, anindependent trust providing superannuation benefits for employees ofvoluntary organisations. These payments are made in accordance withperiodic calculations by consulting actuaries and are based on pensionscosts applicable across the various participating associations taken as awhole. Note 8 gives a full explanation of potential pension liabilities and costs.

(j) Agency managed hostelsThe Group has brought into its financial statements only income and expenditure under its direct control in respect of agency managed hostels.

(k) TaxationEast Thames Group Limited is a registered charity and is registered underthe Companies Act 1985 and is not generally subject to corporation tax.

(l) HomeBuyA subsidiary of the Group, East Homes Limited, participates in theHomeBuy scheme. Purchasers are given a grant of 25% of the value of their home by the company which is in turn reimbursed by the HousingCorporation by way of social housing grant. No rent is payable to thecompany. The company receives an allowance for handling the transaction,paid by way of further grant.

(m) ImpairmentHousing properties which are depreciated over a period in excess of 50 years are subject to impairment reviews annually. Other assets arereviewed for impairment if there is an indication that impairment may have occurred.

Where there is evidence of impairment, fixed assets are written down to their recoverable amount. Any such write down is charged to operating surplus.

(n) Restatements(i) Turnover and operating cost

Turnover and operating costs for the previous year both includean additional £5,612k in respect of sales of properties at cost to other Registered Social Landlords, in compliance with SORP 2005.

(ii) Units of accommodation (Note 5)The figures at 31 March 2006 have been corrected.

(iii) Grants applicable to housing properties (Note 10)The investments in HomeBuy and Starter Home Initiative as atthe previous year end have been restated to reflect reduction ingrant following disposals.


20

2. Particulars of turnover, cost of sales, operating costs and operating surplus

2007 2006

Operating Operating

Operating surplus/ surplus/

GROUP Turnover costs (deficit) (deficit)

£’000 £’000 £’000 £’000

Social housing lettings

Housing accommodation 36,232 26,896 9,336 11,635

Special needs accommodation 17,667 16,948 719 228

Temporary social housing 13,294 13,438 (144) (109)

Shared ownership accommodation 6,626 4,661 1,965 650

73,819 61,943 11,876 12,404

Other social housing activities

Regeneration and development services 1,836 1,989 (153) 119

Abortive costs – 877 (877) –

Sales of properties developed for sale to other Registered Social Landlords 7,811 7,811 – –

Other 1,169 3,886 (2,717) (2,949)

10,816 14,563 (3,747) (2,830)

Total 84,635 76,506 8,129 9,574

2007 2006

Operating Operating

Operating Surplus/ Surplus/

PARENT Turnover costs (deficit) (deficit)

£’000 £’000 £’000 £’000

Other income and expenditure

Regeneration and development services – – – –

Grant from subsidiary – – – –

Group recharge 12,593 17,123 (4,530) (1,406)

Donation received from Group member 5,000 – 5,000 3,000

Other donations – – – 6

Other 418 – 418 569

Total 18,011 17,123 888 2,169

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

Notes to the financial statements 31 March 2007 (continued)


21

3. Income and expenditure from social housing lettings

Care and supported

housing

Temporary

Housing Supported Residential social Shared

GROUP accommodation housing care homes housing ownership 2007 2006

£’000 £’000 £’000 £’000 £’000 £’000 £’000

Rent receivable net of identifiable service charges 31,884 2,234 454 10,644 4,600 49,816 50,319

Service charges receivable 1,714 3,764 – – 396 5,874 5,842

Net rental income 33,598 5,998 454 10,644 4,996 55,690 56,161

Revenue grants from local authorities and other agencies 2,482 1,875 6,452 – – 10,809 11,739

Support charges – fixed contract – 2,159 22 – – 2,181 2,069

Other grants – – – 1,046 – 1,046 483

Other income 152 707 – 1,604 1,630 4,093 3,385

Turnover from social housing lettings 36,232 10,739 6,928 13,294 6,626 73,819 73,837

Services 1,195 1,042 570 1 30 2,838 3,016

Management 14,953 7,376 6,727 12,526 4,329 45,911 44,734

Routine maintenance 5,689 999 251 759 297 7,995 6,736

Planned maintenance 3,273 – – 1 5 3,279 3,613

Rent losses from bad debts 304 (54) (2) 151 – 399 521

Revenue element of major repairs expenditure 322 – – – – 322 827

Housing properties depreciation 1,160 – – – – 1,160 1,000

Other costs – – 39 – – 39 986

Operating costs on social housing lettings 26,896 9,363 7,585 13,438 4,661 61,943 61,433

Operating surplus/(deficit) on social housing lettings 9,336 1,376 (657) (144) 1,965 11,876 12,404

Void losses 822 189 45 465 276 1,797 1,431


4. Sale of fixed assets – housing properties

GROUP Sales Cost 2007 2006

Proceeds of Sales Surplus Surplus

£’000 £’000 £’000 £’000

Sales of older and shared ownership properties 17,235 9,419 7,816 3,986

HomeBuy 1,473 1,054 419 371

Starter Home Initiative – current year sales 3,799 3,428 371 –

22,507 13,901 8,606 4,357

Starter Home Initiative – release of prior year surpluses 222 –

8,828 4,357

5. Units of accommodation in management

GROUP Self contained rental stock Hostels and shared Managed for others

housing

Hostels/

Supported Self- shared Temporary

Managed by Managed housing Managed by Managed contained housing social Shared

Total East Thames by others stock East Thames by others units bedspaces housing ownership

restated

1 April 2006 11,404 7,268 216 615 199 252 131 21 1,108 1,594

31 March 2007 11,300 7,477 218 627 199 252 174 21 841 1,491

The reason for the restatement of the comparative figures is explained in Note 1 Accounting Policies (n)(ii).

22



23

6. Operating surplus

Group Group Parent Parent

2007 2006 2007 2006

This is arrived at after charging: £’000 £’000 £’000 £’000

Depreciation of housing properties 1,160 1,000 – –

Depreciation of tangible fixed assets 1,086 1,022 964 946

Profit or loss on sale of other fixed assets – – – –

Operating leases on land and buildings –(to cover rental payments to Private Sector Landlords for properties used for temporary accommodation for START tenants) 10,468 13,150 – –

Fees payable to the company's auditor for the audit of the financial statements 11 9 11 9

Audit of the financial statements of the Company’s subsidiaries pursuant to legislation 54 49 – –

Fees payable to the company's auditor for other services 6 2 – –

7. Net interest payable and similar charges


2007 2006 2007 2006

£’000 £’000 £’000 £’000

Interest receivable 245 127 – –

Interest payable on loans and leases:

– repayable wholly within five years – – – –

– repayable in more than five years (13,862) (12,966) – –

(13,617) (12,839) – –

Interest receivable from other RSLs 524 329 – –

Interest payable capitalised on housing properties under construction 3,771 3,232 – –

Interest payable capitalised on commercial properties under construction 148 – – –

Interest receivable transferred to the RCGF/DPF (679) (610) – –

Amortisation of loan issue costs (72) – – –

Interest receivable transferred to the Housing Corporation SHI (115) – – –

(10,040) (9,888) – –

Exceptional Item

Breakage costs on refinancing the loans portfolio

During the year the Group refinanced £46 million of loans with HACO and THFC from the £400 million loan facility set up in March 2006 with Barclays and Nationwide. The refinancing of these loans incurred £12.6 million of breakage costs which have been charged to the income and expenditure account in the current year.


24

8. Employees


2007 2006 2007 2006

Number of employees expressed in full time equivalents

Administration 516 517 119 122

Care staff 475 450 – –

Direct labour 61 47 – –

Wardens, caretakers, cleaners – 3 – –

1,052 1,017 119 122


2007 2006 2007 2006

Staff costs

Wages and salaries 25,586 24,111 4,451 4,033

Social security costs 2,399 2,242 432 389

Other pension costs 1,234 1,093 331 246

29,219 27,446 5,214 4,668


Social Housing Pension Scheme (SHPS)

East Thames Group Limited participates in the Social Housing PensionScheme (SHPS). SHPS is a multi-employer defined benefit scheme. TheScheme is funded and is contracted out of the state scheme.

The Scheme operated a single benefit structure, final salary with a 1/60thaccrual rate to March 2007. From April 2007 there are three benefitstructures available, namely:

• Final salary with a 1/60th accrual rate.

• Final salary with a 1/70th accrual rate.

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

An employer can elect to operate different benefit structures for their activemembers (as at the first day of April in any given year) and their newentrants. An employer can only operate one benefit structure at any onetime. An open benefit structure is one which new entrants are able to join.

East Thames Group Limited has elected to operate the final salary with a1/60th accrual rate benefit structure for active members as at 1st April 2007and for new entrants from that date.

The Trustee commissions an actuarial valuation of the Scheme every threeyears. The main purpose of the valuation is to determine the financialposition of the Scheme in order to determine the level of future contributionsrequired so that the Scheme can meet its pension obligations as they falldue. From April 2007 the split of the total contribution rate between member

and employer is set at individual employer level, subject to the employerpaying no less than 50% of the total contribution rate.

The actuarial valuation assesses whether the Scheme’s assets at thevaluation date are likely to be sufficient to pay the pension benefits accruedby members as at the valuation date. Asset values are calculated byreference to market levels.

Accrued pension benefits are valued by discounting expected future benefitpayments using a discount rate calculated by reference to the expectedfuture investment returns.

During the accounting period East Thames Group Limited paidcontributions at the rate of 11.7%. Group contributions to the scheme in theperiod amounted to £1,234k (2006: £1,093k). Member contributions variedbetween 3.1% and 6.1% depending on their age.

At the balance sheet date there were 318 active members of the Schemeemployed by East Thames Group and it continues to offer membership ofthe Scheme to its employees.

It is not possible in the normal course of events to identify the share ofunderlying assets and liabilities belonging to individual participatingemployers.

Accordingly, due to the nature of the Plan, the accounting charge for theperiod under FRS17 represents the employer contribution payable.


25

The last formal valuation of the Scheme was performed as at 30 September2005 by a professionally qualified actuary using the ‘Projected Unit Method’.The market value of the Scheme’s assets at the valuation date was £1,278million. The valuation revealed a shortfall of assets compared to liabilities of£283 million equivalent to past service funding level of 82%.

The Scheme Actuary has prepared an Actuarial Report that provides anapproximate update on the funding position of the Scheme as at 30September 2006. Such a report is required by legislation for years in whicha full actuarial valuation is not carried out. The funding update revealed anincrease in the assets of the Scheme to £1,515 million and indicated adecrease in the shortfall of assets compared to liabilities to approximately£235 million, equivalent to a past service funding level of 87%. Annualfunding updates of the SHPS Scheme are carried out using approximateactuarial techniques rather than member by member calculations, and willtherefore not produce the same results as a full actuarial valuation.However they will provide a good indication of the financial progress of theScheme since the last full valuation.

Since the contribution rates payable to the Scheme have been determinedby reference to the last full actuarial valuation the following notes relate tothe formal actuarial valuation as at 30 September 2005.

The financial assumptions underlying the valuation as at 30 September2005 were as follows:

% pa

Investment return pre retirement 7.2

Investment return post retirement 4.8

Rate of salary increases to 30 September 2010 5.0

Rate of salary increases from 1 October 2010 4.0

Rate of pension increases 2.5

Rate of price inflation 2.5

The long-term joint contribution rate required from employers and membersto meet the cost of future benefit accrual was assessed at:

Long-term joint contribution rateBenefit structure (% of pensionable salaries)

Final salary with a 1/60th accrual rate 17.6

Final salary with a 1/70th accrual rate 15.3

Career average revalued earnings with a 1/60th accrual rate 14.1

If an actuarial valuation reveals a shortfall of assets compared to liabilitiesthe Trustee must prepare a recovery plan setting out the steps to be takento make up the shortfall.

Following consideration of the results of the actuarial valuation it wasagreed that the shortfall of £283 million would be dealt with by the paymentof deficit contributions of 4.4% of pensionable salaries with effect from 1April 2007. These deficit contributions are in addition to the long-term jointcontribution rates set out in the table above.

With effect from 1 April 2007 the employer and employee contribution ratesfor East Thames Group Limited. will be 14.1% and 6.4%-8.4% ofpensionable salaries respectively.

Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a combined employer and employee rate).

Employers that have closed the Scheme to new members are required topay an additional employer contribution loading of 3.0% to reflect the highercosts of a closed arrangement.

A small number of employers are required to contribute at a different rate toreflect the amortisation of a surplus or deficit on the transfer of assets andpast service liabilities from another pension scheme into the SHPSScheme.

Employers joining the Scheme after 1 October 2002 that do not transfer anypast service liabilities to the Scheme pay contributions at the ongoing futureservice contribution rate. This rate is reviewed at each valuation and appliesuntil the second valuation after the date of joining the Scheme, at whichpoint the standard employer contribution rate is payable. Contribution ratesare changed on the 1 April that falls 18 months after the valuation date.

If the valuation assumptions are borne out in practice this pattern ofcontributions should be sufficient to eliminate the past service deficit by 30September 2020.

A copy of the recovery plan, setting out the level of deficit contributionspayable and the period for which they will be payable, must be sent to thePensions Regulator. The Regulator has the power under Part 3 of thePensions Act 2004 to issue scheme funding directions where it believes thatthe actuarial valuation assumptions and/or recovery plan are inappropriate.For example the Regulator could require that the Trustee strengthens theactuarial assumptions (which would increase the scheme liabilities andhence impact on the recovery plan) or impose a schedule of contributionson the Scheme (which would effectively amend the terms of the recoveryplan). The Regulator has reviewed the recovery plan for the SHPS Schemeand confirmed that, in respect of the September 2005 actuarial valuation, itdoes not propose to issue any scheme funding directions under Part 3 ofthe Pensions Act 2004.

The next full actuarial valuation will be carried out as at 30 September 2008.An Actuarial Report will be prepared as at 30 September 2007 in line withstatutory regulations.

Following a change in legislation in September 2005 there is a potentialdebt on the employer that could be levied by the Trustee of the Scheme.The debt is due in the event of the employer ceasing to participate in theScheme or the Scheme winding up.


26

8. Employees (continued)The debt for the Scheme as a whole is calculated by comparing theliabilities for the Scheme (calculated on a buyout basis i.e. the cost ofsecuring benefits by purchasing annuity policies from an insurer, plus anallowance for expenses) with the assets of the Scheme. If the liabilitiesexceed assets there is a buy-out debt.

The leaving employer’s share of the buy-out debt is the ‘proportion of theScheme’s liability attributable to employment with the leaving employercompared to the total amount of the Scheme’s liabilities (relating toemployment with all the currently participating employers). The leavingemployer’s debt therefore includes a share of any ‘orphan’ liabilities inrespect of previously participating employers. The amount of the debttherefore depends on many factors including total Scheme liabilities,Scheme investment performance, the liabilities in respect of current andformer employees of the employer, financial conditions at the time of thecessation event and the insurance buy-out market. The amounts of debtcan therefore be volatile over time.

East Thames Group Limited has been notified by the Pensions Trust of theestimated employer debt on withdrawal from the Plan based on thefinancial position of the Scheme as at 31 March 2007. As of this date theestimated employer debt for East Thames Group was £27,190,000.

The Group has also been notified that following the merger of East Choicewith East Homes, the proportion of the SHPS potential debt relating to EastChoice at the date of the merger should be secured by either a bond or acharge on assets. The Scheme Actuary has advised that the estimatedbuy-out debt as at 30 September 2005 is £2,458,665.

Pension Trust – Growth PlanEast Thames Group Limited participates in the Pensions Trust’s GrowthPlan. The Growth Plan is a multi-employer pension plan. Contributions paidinto the Growth Plan up to and including September 2001 were convertedto defined amounts of pension payable from Normal Retirement Date. FromOctober 2001 contributions were invested in personal funds which have acapital guarantee and which are converted to pension on retirement, eitherwithin the Growth Plan or by the purchase of an annuity.

The Plan is funded and is not contracted out of the state scheme. The rulesof the Growth Plan allow for the declaration of bonuses and/or investmentcredits if this is within the financial capacity of the Plan assessed on aprudent basis. Bonuses/investment credits are not guaranteed and aredeclared at the discretion of the Plan’s Trustee.

The rules of the Growth Plan give the Trustee the power to requireemployers to pay additional contributions in order to ensure that thestatutory funding objective under the Pensions Act 2004 is met. Thestatutory funding objective is that a pension scheme should have sufficientassets to meet its past service liabilities, known as Technical Provisions.

The Trustee commissions an actuarial valuation of the Growth Plan every 3years. The purpose of the actuarial valuation is to determine the fundingposition of the Plan by comparing the assets with the past service liabilitiesas at the valuation date. Asset values are calculated by reference to marketlevels. Accrued past service liabilities are valued by discounting expectedfuture benefit payments using a discount rate calculated by reference to theexpected future investment returns.

If the actuarial valuation reveals a deficit, the Trustee will agree a recoveryplan to eliminate the deficit over a specified period of time either by way ofadditional contributions from employers, investment returns or acombination of these.

East Thames Group Limited offers the Growth Plan as an AVC investmentoption for members of the Social Housing Pension Scheme. The memberspay contributions at a rate of their choice. East Thames Group Limited doesnot normally pay any contributions to the Growth Plan.

It is not possible in the normal course of events to identify the share ofunderlying assets and liabilities belonging to individual participatingemployers. Accordingly, due to the nature of the Plan, the accountingcharge for the period under FRS17 represents the employer contributionpayable.

The last formal valuation of the Scheme was performed as at 30September 2005 by a professionally qualified actuary using the ProjectedUnit Method. The market value of the Scheme’s assets at the valuationdate was £675 million and the Plan’s Technical Provisions (i.e. past serviceliabilities) were £704 million. The valuation therefore revealed a shortfall ofassets compared with the value of liabilities of £29 million, equivalent to afunding level of 96%.

The Scheme Actuary has prepared an Actuarial Report that provides anapproximate update on the funding position of the Plan as at 30 September2006. Such a report is required by legislation for years in which a fullactuarial valuation is not carried out. The funding update revealed anincrease in the assets of the Scheme to £747 million and indicated asurplus of assets compared to liabilities of approximately £2 million,equivalent to a funding level of 0.2%. Annual funding updates of the GrowthPlan are carried out using approximate actuarial techniques rather thanmember by member calculations, and will therefore not produce the sameresults as a full actuarial valuation. However they will provide a goodindication of the financial progress of the Plan since the last full valuation.

Since the contribution rates payable to the Plan have been determined byreference to the last full actuarial valuation the following notes relate to theformal actuarial valuation as at 30 September 2005.



27

The financial assumptions underlying the valuation as at 30 Septemberwere as follows:

% pa

Investment return pre retirement 6.6

Investment return post retirement 4.5

Bonuses on accrued benefits 0

Rate of price inflation 2.5

In determining the investment return assumptions the Trustee consideredadvice from the Scheme Actuary relating to the probability of achievingparticular levels of investment return. The Trustee has incorporated anelement of prudence into the pre and post retirement investment returnassumptions; such that there is a 60% expectation that the return will be inexcess of that assumed and a 40% chance that the return will be lower thanthat assumed over the next 10 years.

If an actuarial valuation reveals a shortfall of assets compared to liabilitiesthe Trustee must prepare a recovery plan setting out the steps to be takento make up the shortfall.

In view of the small funding deficit and the level of prudence implicit in theassumptions used to calculate the Plan liabilities the Trustee has prepared arecovery plan on the basis that no additional contributions from participatingemployers are required at this point in time. In reaching this decision theTrustee has taken actuarial advice and has been advised that the shortfallof £29 million will be cleared within five years if the investment returns fromassets are in line with the ‘best estimate’ assumptions. ‘Best estimate’means that there is a 50% expectation that the return will be in excess ofthat assumed and a 50% expectation that the return will be lower than thatassumed over the next 10 years. These ‘best estimate’ assumptions are7.6% per annum pre retirement and 4.8% per annum post retirement.

A copy of the recovery plan must be sent to the Pensions Regulator. TheRegulator has the power under Part 3 of the Pensions Act 2004 to issuescheme funding directions where it believes that the actuarial valuationassumptions and/or recovery plan are inappropriate. For example theRegulator could require that the Trustee strengthens the actuarialassumptions (which would increase the scheme liabilities and hence impacton the recovery plan) or impose a schedule of contributions on the Scheme(which would effectively amend the terms of the recovery plan). TheRegulator has reviewed the recovery plan for the Growth Plan andconfirmed that, in respect of the September 2005 actuarial valuation, it doesnot propose to issue any scheme funding directions under Part 3 of thePensions Act 2004.

The next full actuarial valuation will be carried out as at 30 September 2008.An Actuarial Report will be prepared as at 30 September 2007 in line withstatutory regulations.

Following a change in legislation in September 2005 there is a potentialdebt on the employer that could be levied by the Trustee of the Plan.

The Trustee’s current policy is that it only applies to employers with preOctober 2001 liabilities in the Plan. The debt is due in the event of theemployer ceasing to participate in the Plan or the Plan winding up.

The debt for the Plan as a whole is calculated by comparing the liabilities forthe Plan (calculated on a buyout basis i.e. the cost of securing benefits bypurchasing annuity policies from an insurer, plus an allowance forexpenses) with the assets of the Plan. If the liabilities exceed assets there isa buy-out debt.

The leaving employer’s share of the buy-out debt is the proportion of thePlan’s pre October 2001 liability attributable to employment with the leavingemployer compared to the total amount of the Plan’s pre October 2001liabilities (relating to employment with all the currently participatingemployers). The leaving employer’s debt therefore includes a share of any‘orphan’ liabilities in respect of previously participating employers. Theamount of the debt therefore depends on many factors including total Planliabilities, Plan investment performance the liabilities in respect of currentand former employees of the employer, financial conditions at the time ofthe cessation event and the insurance buy-out market. The amounts of debtcan therefore be volatile over time.

East Thames Group Limited has been notified by the Pensions Trust of theestimated employer debt on withdrawal from the Plan based on the financialposition of the Scheme as at 30 September 2005. As of this date theestimated employer debt for East Thames Group was £70,000.

NHS Pension SchemeThe NHS Pension Scheme is an unfunded, defined benefit scheme thatcovers NHS employers, General Practices and other bodies, allowed underthe direction of Secretary of State, in England and Wales. As a consequenceit is not possible for the East Thames Group Limited to identify its share ofthe underlying scheme liabilities. Therefore, the scheme is accounted for as a defined contribution scheme and the cost of the scheme is equal to thecontributions payable to the scheme for the accounting period.

Employers pension costs contributions are charged to operating expensesas and when they become due. Employer contribution rates are reviewedevery four years following a scheme valuation carried out by theGovernment Actuary. On advice from the actuary the contribution may bevaried from time to time to reflect changes in the scheme’s liabilities. At thelast valuation on which contribution rates were based (31 March 1999)employer contribution rates from 2003–04 were set at 14% of pensionablepay. (Until 2002–03 HMT paid the Retail Price Indexation costs of the NHSPension scheme direct but as part of the Spending Review Settlement,these costs have been devolved in full. For 2003–04 the additional fundingwas retained as a Central Budget by the Department of Health and waspaid direct to the NHS Pension Scheme, whilst the employers' contributionremained at 7%. From 2004–05 this funding was devolved in full to NHSPension Scheme employers and the employers' contribution rate rose to14%.) The 2004 valuation of the Scheme is currently being prepared.


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8. Employees (continued)The total employer contribution payable in the year ended 31 March 2007was £109,042 (2006: £115,886). In addition employees who are membersof the Scheme pay contributions of 6% (manual staff 5%) of theirpensionable pay.

In addition the Scheme is subject to a full valuation for FRS17 accountingpurposes every four years. The last valuation on this basis took place as at31 March 2003. Between valuations, the Government Actuary provides anupdate of the scheme liabilities on an annual basis. The latest assessmentof the liabilities of the Scheme is contained in the Scheme Actuary report,which forms part of the NHS Pension Scheme (England and Wales)Resource Account, published annually.

The Scheme is a “final salary” scheme. Annual pensions are normallybased on 1/80th of the best of the last three years pensionable pay for eachyear of service. A lump sum normally equivalent to three years pension ispayable on retirement. Annual increases are applied to pension paymentsat rates defined by the Pensions (Increase) Act 1971, and are based onchanges in retail prices in the twelve months ending 30 September in theprevious calendar year. On death, a pension of 50% of the member’spension is normally payable to the surviving spouse.

Early payment of a pension, with enhancement, is available to members ofthe Scheme who are permanently incapable of fulfilling their dutieseffectively through illness or infirmity.

The Scheme also provides for death benefits, with a death gratuity of twicefinal year’s pensionable pay for death in service, and up to five times theannual pension for death after retirement payable.

The Scheme provides the opportunity to members to increase their benefitsthrough money purchase Additional Voluntary Contributions (AVCs)provided by an approved panel of life companies. Under the arrangementthe employee can make contributions to enhance their pension benefits.The benefits payable relate directly to the value of the investments made.

Except for where the retirement is due to ill-health, additional pensionliabilities arising from early retirements are met by the Scheme andrecharged to the employees former employer. The full amount of the liabilityfor the additional costs is charged to the Operating Cost Statement at thetime the Authority commits itself to the retirement, regardless of the methodof payment.



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9. Directors, members and senior staff emoluments

The Directors of the parent company as defined under the Accounting Requirements for Registered Social Landlords General Determination 2006 are its Management Board, the Chief Executive and any other person who is a member of the senior management team.

Basic Benefits Pension Total Total

salary in kind contributions 2007 2006

£’000 £’000 £’000 £’000 £’000Chief ExecutiveJune Barnes 132 1 11 144 138

Deputy Chief ExecutiveMartin Heys 108 1 – 109 103

Managing Director – East Homes Limited Victor da Cunha 97 – 11 108 98

Managing Director – East Living Limited Martin van Tol 86 1 10 97 90

Managing Director – East Potential David Chesterton 76 1 9 86 81

Group Director – Development Steven Tarry (to May 06) 10 – 1 11 98

Group Director – Development Geoff Pearce (from July 06) 67 – 8 75 –

Group Director – Corporate Services Davina Boakye (excludes sabbatical) 64 1 9 74 82

Group Director – Business Services Jacky Kutner 76 1 9 86 81

Group Company Secretary Henry Potter 53 – 6 59 56

769 6 74 849 827

The highest paid director received remuneration of £144,000 (2006: £138,000)

The Chief Executive is an ordinary member of the pension scheme and hasa contractual arrangement with East Thames Group Limited coveringadditional voluntary contributions (AVC's).

There are no other enhanced pension arrangements to which East ThamesGroup or any of its subsidiaries make a contribution.

Remuneration paid to committee members for the year amounts to£104,582 (2006: £122,000).

Expenses paid during the year to members of the Board amount to £105,327 (2006: £54,937).

No payments of benefits, other than those permitted, were made to thepersons referred to in Part 1, Schedule 1 of the Housing Act 1996.


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10. Tangible fixed assets – housing propertiesShared Shared

Housing Housing ownership ownership properties properties properties properties

held for under held for under letting construction letting construction Total

Valuation £’000 £’000 £’000 £’000 £’000

As at 1 April 2006 364,282 72,846 78,278 57,932 573,338 Additions 2,050 36,007 13,571 20,728 72,356 Works to existing properties 6,826 – – – 6,826Interest capitalised 17 1,798 – 1,956 3,771Schemes completed 41,683 (41,683) 11,638 (11,638) –Disposals (534) (877) (27,472) – (28,883)Valuation adjustment (19,137) – 2,833 – (16,304)At 31 March 2007 395,187 68,091 78,848 68,978 611,104

Depreciation and impairmentAs at 1 April 2006 – – – – –Depreciation charged in year 1,160 – – – 1,160Valuation adjustment (1,160) – – – (1,160)At 31 March 2007 – – – – –

Social housing and other grantsAs at 1 April 2006 – 41,270 – 14,334 55,604 Additions 10 15,094 (73) 2,802 17,833Schemes completed 19,851 (19,851) 5,954 (5,954) –Disposals (304) (1,575) (4,611) – (6,490)Valuation adjustment (19,557) – (1,270) – (20,827)At 31 March 2007 – 34,938 – 11,182 46,120

Net book valueAt 31 March 2007 395,187 33,153 78,848 57,796 564,984At 31 March 2006 364,282 31,576 78,278 43,598 517,734

2007 2006Expenditure on works to existing properties £'000 £'000

Amount capitalised 6,826 7,252Amounts charged to income and expenditure account 322 827

7,148 8,079Total accumulated capital and revenue social grant receivableCapital grants 474,613 448,291Revenue grants – –

474,613 448,291Housing properties comprise:Freehold land and buildings 564,629 517,379Long leasehold land and buildings 355 355

564,984 517,734



31

Completed housing properties held for letting are stated at Existing Use Value for Social Housing (EUV-SH) and shared ownership propertiesare stated at EUV-SH less the Net Present Liability to repay Social Housing Grant. Housing properties have been valued by professionalvaluers, FPD Savills, Chartered Surveyors.

The last valuation of completed housing properties was prepared as at 31 March 2007 in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. This has resulted in apositive valuation adjustment as follows:

Completed properties at valuation £’000

East Homes Limited 474,035

474,035

Housing properties under construction at cost

East Homes Limited 137,069

611,104

In the valuing of housing properties, discounted cash flow methodology was adopted and key assumptions included:

Discount rate 6.0%

Annual inflation rate 2.5%

Level of annual rent increase 0.5%

The carrying value of the housing properties that would have been in the financial statements had the assets

been carried forward at historical costs less SHG and depreciation is as follows: restated2007 2006£’000 £’000

Historical cost 820,783 765,262

Social Housing Grant (423,052) (410,686)

Other capital grants (51,561) (52,584)

Depreciation and impairment (5,573) (4,874)

340,597 297,118

Investment in HomeBuy and Starter Home Initiative: restated2007 2006£’000 £’000

Long term investment in properties 35,945 36,864

New investment 161 1,915

Decrease in investment in properties (4,400) (2,834)

Cost of HomeBuy and Starter Home Initiative 31,706 35,945

Less: Social Housing Grant (31,706) (35,945)

– –

The reason for the restatement of the comparative figures is explained in Note 1 Accounting Policies (n)(iii).


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11. Tangible fixed assets – Other

Freehold Plantoffice under Freehold equipment Motor

construction office & furniture vehicles TotalGROUP £’000 £’000 £’000 £’000 £’000

Cost

At 1 April 2006 2,976 11,664 8,633 131 23,404

Additions 8,873 1,311 1,678 – 11,862

At 31 March 2007 11,849 12,975 10,311 131 35,266

Depreciation

At 1 April 2006 – (3,370) (4,755) (121) (8,246)

Charged in year – (335) (747) (4) (1,086)

At 31 March 2007 – (3,705) (5,502) (125) (9,332)

Net book value

At 31 March 2007 11,849 9,270 4,809 6 25,934

At 31 March 2006 2,976 8,294 3,878 10 15,158

PARENT

Cost

At 1 April 2006 2,976 9,350 7,778 – 20,104

Additions 8,873 381 1,634 – 10,888

At 31 March 2007 11,849 9,731 9,412 – 30,992

Depreciation

At 1 April 2006 – (3,306) (4,315) – (7,621)

Charged in year – (330) (634) – (964)

At 31 March 2007 – (3,636) (4,949) – (8,585)

Net book value

At 31 March 2007 11,849 6,095 4,463 – 22,407

At 31 March 2006 2,976 6,044 3,463 – 12,483



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12. Investments and related party transactions

2007 2006£’000 £’000

Passmore Urban Renewal Limited – 450

Fixed term Treasury Deposit – 1,235

– 1,685

Both of these investments were repaid this year.

The investment in Passmore Urban Renewal Limited was recovered at cost.

The fixed term treasury deposit was cashed in and converted to cash at bank.

The parent company has a 100% shareholding in East Street ServicesLimited whose main activity is to undertake property management servicesfor other associations and to deal with other non-charitable housingactivities.

The parent company owns one £1 nominal share in East Living Limitedwhose main activity is providing care and housing management forsupported housing and residential care homes. The parent company hasentered into trust arrangements with the members of East Living Limitedwhich require it to classify it as a subsidiary.

The parent company has entered into trust arrangements with the membersof East Potential which require it to classify it as a subsidiary. The principalactivity of East Potential is the provision of housing management servicesat the Stratford (Focus E15), Harlow (Occasio House), Redbridge, andTower Hamlets (Drapers City) Foyers and First Step Assessment Centreand related training and information services to young people in eastLondon and Harlow.

East Regen Limited commenced trading on 1 April 2005 and has providedmanagement and development services for the Group during the year.

East Homes Limited has entered into a lease and leaseback arrangementfor the Stratford (Focus E15) Foyer with East Potential, a fellow subsidiary,for a period of 25 years. The net margin passing to East Potential amountsto £5,000 per annum.


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13. Properties for sale

Group Group2007 2006£’000 £’000

Completed properties for sale to other Registered Social Landlords 9,860 4,700

Properties for sale to other Registered Social Landlords under

construction net of Social Housing Grant 2,654 14,224

12,514 18,924

14. Debtors

Group Group Parent Parent2007 2006 2007 2006£’000 £’000 £’000 £’000

Due within one year:

Arrears of rent and service charges 3,414 3,762 – –

Less: Provision for bad and doubtful debts (2,050) (1,934) – –

1,364 1,828 – –

Other debtors 4,756 3,717 560 677

Prepayments and accrued income 1,151 1,117 196 172

Amounts due from group companies (net of provisions) – – 10,164 37,440

7,271 6,662 10,920 38,289

15. Cash at bank and in hand

Included in cash at bank and in hand are amounts totalling Group : £200,000 (Parent Company : £ Nil ) 2006 Group £200,000 (Parent Company : £ Nil)which are subject to restrictions and are not freely available for general use.


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16. Creditors: Amounts falling due within one year


Loans (note 20) 5,050 666 – –

Bank overdraft 1,144 3,580 1,144 3,276

Rent and service charges received in advance 1,552 1,906 – –

Social Housing Grants received in advance 5,758 2,739 – –

Amount due to group companies – – 20,375 39,526

Taxation and social security 601 170 54 (352)

Accruals and deferred income 10,550 9,905 1,708 502

Other creditors 7,305 5,661 4,045 2,707

Recycled Capital Grant Fund (note 18) 3,140 – – –

Disposal Proceeds Fund (note 19) 610 685 – –

35,710 25,312 27,326 45,659

Social Housing Grant received in advance will be utilised against capital expenditure in 2007–08.

17. Creditors: Amounts falling due after more than a year


Loans (note 20) 289,678 249,115 – –

Deferred income – 1,281 – –

Recycled Capital Grant Fund (note 18) 9,467 9,883 – –

Disposal Proceeds Fund (note 19) 1,047 932 – –

Other 3,538 1,732 – –

303,730 262,943 – –


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18. Recycled Capital Grant Fund

Group Group2007 2006£’000 £’000

At 1 April 2006 9,883 10,423

Grants recycled 5,634 3,487

Interest accrued 587 414

Purchase/development of properties (3,497) (4,441)

12,607 9,883

Repayment of grant to Housing Corporation – –

Balance at 31 March 2007 12,607 9,883

Amount due for repayment to Housing Corporation 3,140 –

19. Disposal Proceeds Fund

Group Group2007 2006£’000 £’000

At 1 April 2006 1,617 2,035

Net sale proceeds recycled 689 322

Interest accrued 91 94

Major repairs and works to existing stock (740) (834)

Balance at 31 March 2007 1,657 1,617

Grants from the Recycled Capital Grant Fund and Disposal Proceeds Fund are used to build more affordable homes and to meet local and regional housingpriorities. On larger schemes use of the funding offers better value for money, therefore less is required from central government.



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20. Debt analysis


Due within one year:Bank overdraft 1,144 3,580 1,144 3,276Bank loans – – – –Royal Bank of Scotland (originally the Housing Corporation) loans 50 28 – – Other loans 5,000 638 – –

6,194 4,246 1,144 3,276


Due after more than one year:Bank loans – 260 – – Royal Bank of Scotland (originally the Housing Corporation) loans 6,004 5,812 – – Barclays Bank 146,118 80,884 – –Nationwide Building Society 138,000 116,458 – – HACO – 25,000 – – Other loans 1,417 21,614 – – Capitalised costs (1,861) (913) – –

289,678 249,115 – –


Loans are repayable as follows:Within one year 6,194 4,246 1,144 3,276 Between one and two years 38 1,309 – – Between two and five years 138 2,501 – –After more than five years 291,363 246,217 – –

297,733 254,273 1,144 3,276

During the year new loan arrangements between East Treasury Limited (amember of East Thames Group Limited), Nationwide, Barclays andBarclays Syndicate totalling £400m were agreed. This facility has beenused to refinance our existing loan portfolio and provide significantadditional funds for development and other new business initiatives.

At 31st March 2007 East Homes Limited had borrowed £161 million fromEast Treasury Limited for this purpose. Interest is payable on the new facilityborrowings at fixed rates varying from 4.02% to 4.135% on £31 million, andat rates linked to LIBOR on the remaining £130 million.

The consolidated loan from Royal Bank of Scotland is repaid in half-yearlyinstalments over the estimated life of the scheme on which the loan issecured, at a fixed interest rate of 10.65%. The final instalments are due for repayment in the period 2006 to 2037.

The HACO £25 million bond is due to be repaid in 2006–07 as part of therefinancing of existing loans. The interest is fixed at 10.625%.

THFC loans totalling £20 million are due to be repaid in 2006–07 as part of the refinancing of existing loans. The interest rates payable range from5.05% to 5.57%.

The £1.25 million THFC Bond is fixed at 12.97% and is due to be repaid in 2019.

All loans are secured by a combination of fixed and variable charges onindividual properties.


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21. Annual obligations under operating leases

Group Group2007 2006£’000 £’000

Operating leases on land and buildings which expire:

Within one year 1,685 2,040

In the second to fifth years inclusive 3,535 4,109

Over five years 277 479

22. Provision for liabilities

Group Group2007 2006£’000 £’000

Dilapidation repair provision – 100

The provision has been released, as the level of repairs expected to be incurred does not include any material repairs. Day to day repairs will be funded from revenue reserves.

23. Non-equity share capital

2007 2006£ £

Shares of £1 each issued and fully paid

At 1 April 2006 47 49

Shares issued during the year 0 2

Shares surrendered during the year (3) (4)

At 31 March 2007 44 47

The shares provide members with the right to vote at general meetings, but do not provide any rights to dividends, redemption of share capital or distribution on winding up.



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24. Reserves

GROUP Revaluation Restricted Designated Consolidated Revenue Total£’000 £’000 £’000 £’000 £’000 £’000

At 1 April 2006 220,616 1,784 3,011 263 53,768 279,442

Deficit for the year – – – – (5,662) (5,662)

Property revaluation adjustment 5,682 – – – – 5,682

Transfers (1,912) (2,231) – – 2,458 (1,685)

Utilisations – Gift Aid – 546 – – 1,139 1,685

At 31 March 2007 224,386 99 3,011 263 51,703 279,462

PARENT Restricted Designated Revenue Total£’000 £’000 £’000 £’000

At 1 April 2006 1,685 – 3,428 5,113

Surplus for the year – – 888 888

Transfers (2,231) – 546 (1,685)

Utilisations – Gift Aid 546 – 1,139 1,685

At 31 March 2007 – – 6,001 6,001

Group Group Parent Parent2007 2006 2007 2006

Restricted reserves comprise: £’000 £’000 £’000 £’000

Donations 25 25 – –

Gift Aid – 1,685 – 1,685

East Potential 74 74 – –

99 1,784 – 1,685

Group Group Parent Parent2007 2006 2007 2006

Designated reserves comprise: £’000 £’000 £’000 £’000

Major repairs schemes funded under 1988 legislation 2,068 2,068 – –

Development – borough specific 911 911 – –

Gift Aid 32 32 – –

3,011 3,011 – –

The Group plans its financial affairs to ensure that each year revenueincome exceeds revenue expenditure. This policy ensures that the Grouphas a margin of safety to manage unexpected expenditure or shortfalls inincome. The annual surpluses ensure that East Thames Group Limited isable to meet its commitment to providers of private finance and continue toprovide social housing.

During the year the Group refinanced £46 million of loans and bonds withHACO and THFC from the £400 million loan facility set up in March 2006with Barclays and Nationwide. The breakage costs of the refinancingarrangement totalling £12.6 million were charged to the income andexpenditure account in the current year.

The resulting deficit on ordinary activities of £5.7 million and the positivemovement on reserves of £3.6 million were added to the reserves broughtforward of £53.8 million resulting in £51.7 million being carried forward. Thebenefits of this refinancing package will be reflected in lower interest rateand administration costs in future years.

Unlike commercial organisations the Group’s rules prevent the distributionof reserves. Instead these are applied to furthering our aims andobjectives. At 31st March 2007 the Group’s reserves were all used infinancing investments in social housing.


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25. Financial commitments

Group Group2007 2006£’000 £’000

Capital Commitments

Expenditure contracted for but not provided in the accounts 167,920 105,860

Expenditure authorised by the Board but not contracted for 39,495 90,448

207,415 196,308

This expenditure will be funded from loan facilities, which are already in place, and from Social Housing Grant.

26. Contingent liabilities

The Group had no contingent liabilities at 31 March 2007 (2006: £ Nil)

27. Reconciliation of operating surplus to operating cash flows


Operating surplus 8,129 9,573 888 2,169

Depreciation of fixed assets 2,246 2,088 964 946

Write off of abortive costs 877 (10) – –

Sales allowances (283) – – –

Net increase/(decrease) in provisions 42 107 – –

11,011 11,758 1,852 3,115

Movement in Working Capital

Decrease in investments – 39 – –

Decrease/(increase) in stock 6,410 (7,515) – –

Decrease/(increase) in debtors 3,223 1,036 27,370 (30,869)

Increase/(decrease) in creditors (1,423) (41) (16,202) 30,178

Net cash inflow from operating activities 19,221 5,277 13,020 2,424


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28. Reconciliation of net cash flow to movement in net debt


Increase/(decrease) in cash in the period 3,001 2,798 2,132 (134)

Cash inflow from increase in debt and lease financing (45,896) (69,310) – –

Cash outflow from loan issue costs 1,020 437 – –

Change in net debt resulting from cash flows (41,875) (66,075) 2,132 (134)

Change in net debt resulting from non-cash flows (72) _ _ _

Net debt at the start of the period (245,726) (179,651) (3,276) (3,142)

Net debt at the end of the period (287,673) (245,726) (1,144) (3,276)

29. Analysis of net debt

OtherGroup 2006 Cashflow changes 2007

£’000 £’000 £’000 £’000

Cash at bank and in hand 7,634 565 – 8,199

Bank overdraft (3,580) 2,436 – (1,144)

4,054 3,001 – 7,055

Loans due within one year (666) (4,384) – (5,050)

Loans due after more than one year (250,027) (41,512) _ (291,539)

Capitalised loan issue costs 913 1,020 (72) 1,861

(245,726) (41,875) (72) (287,673)

OtherParent 2006 Cashflow changes 2007

£’000 £’000 £’000 £’000

Bank overdraft (3,276) 2,132 – (1,144)


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OURMISSION,KEY AIMSANDVALUES

Our key aimsWe deliver on our mission by:

1 providing high quality homes and services that meet the needs ofour customers;

2 ensuring that our customers can influence our services;

3 influencing local, regional and national thinking, policies and strategies;

4 developing well-informed, committed and enthusiastic staff; and

5 actively using our financial and organisational strength.

Our valuesIn achieving our mission, we will be driven by our four core business values.

We will be customer focused:• responding to what our customers say;• providing excellent and reliable services; and• enabling customer choice.

We will be ambitious:• creating new approaches to service delivery;• producing excellent outcomes; and• striving for excellence in everything we do.

We will be professional:• being straightforward in everything we do;• adopting a flexible approach to delivering services;• demonstrating a respectful approach to our customers; and• being open, reliable and consistent.

We will be leaders:• empowering our staff to act responsibly;• showing creativity in service provision;• inspiring those who work with us; and• campaigning on key issues.

Our missionTo make a positive and lasting contribution to the neighbourhoodsin which we work.


Registered Office:

3 Tramway Avenue

Stratford

London E15 4PN

Switchboard: 020 8522 2000

Customer Contact Centre: 0845 600 0830

Minicom: 020 8522 2006

Fax: 020 8522 2001

www.east-thames.co.uk

Registered by the Housing Corporation, No. LH4309

Registered under the Companies Act 1985, No. 4091100

Registered charity 1084952

Member of the National Housing Federation

Published by East Thames Group Limited

This publication is printed on recycled paper.

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Group Accounts 2007

Documents

Transcript of Group Accounts 2007