WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARY … · WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARY...

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARY

AN EXEMPT CHARITY

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2016

Registered Co-operative and Community Benefit Society Number 31930R Homes & Communities Agency Number: 4746

Registered office: 4040 Lakeside Solihull Parkway Birmingham B377YN

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARY

CONTENTS PAGE

Board, Executive Directors and Advisers 1 - 2

Report of the Board 3 - 6

Report of the Independent Auditors 7-8

Statements of Comprehensive Income 9 - 10

Statements of Financial Position 11 - 12

Statements of Changes in Reserves 13 - 14

Consolidated Statements of Cash Flows 15

Notes to the Financial Statements 16 - 52

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES BOARD, EXECUTIVE DIRECTORS AND ADVISERS

Board

John Creswell Rebecca Bennett Casserly George Davidge Peter Dunford Phil Green Lisa Howarth Phil Ingle Jane Sargeant Helen Scarrett Stephen Sellers Catherine Stubbings Sangita Surridge Paul Taylor Peter Taylor Gideon White Andrew Winscom

Executive Directors

Kevin Rodgers

Pat Brandum Stuart Kellas Simon Kimberley Denise Shuker Kevin Willetts

(resigned 1 October 2015) (appointed 14 July 2015)

(appointed 1 January 2016) (appointed 17 May 2016) (resigned 4 January 2016) (resigned 28 July 2015) (appointed 1 December 2015) (resigned 15 September 2015)

(appointed 1 December 2015) (resigned 31 March 2016) (resigned 28 July 2015) (appointed 1 December 2015) (appointed 1 December 2015)

Chief Executive (from 5 May 2015) Executive Director Finance & Resources & Deputy Chief Executive (to 5 May 2015) Chief Executive (to 5 May 2015) Executive Director Finance and Governance (from 22 June 2015) Executive Director Whitefriars Housing Group Executive Director West Mercia Homes, Optima and Family Executive Director Development

Membership of the Group Committees in operation at the date of signing of the financial Statements was:

Treasury and Development Committee

Colin Dennis (Chair) John Creswell Philip Green Richard Grainger Michael Sullivan Carole Wildman

WM Housing Group WM Housing Group West Mercia Homes WM Housing Group Family /Optima Whitefriars Housing Group

Finance, Audit and Risk Committee

Crispin Passmore (Chair) Diane Jones Richard Nowell Andrew Winscom Abigail Davies

WM Housing Group Whitefriars Housing Group Family /Optima West Mercia Homes WM Housing Group

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES BOARD, EXECUTIVE DIRECTORS AND ADVISERS

Governance, Remuneration and Appointments Committee

Rebecca Bennett Casserly (Chair) WM Housing Group Colin Dennis WM Housing Group Richard Grainger WM Housing Group James Brooks-Ward WM Housing Group John Creswell Chair - West Mercia Homes Peter Morton Chair - Whitefriars Housing Group Danielle Oum Chair - Family Optima

Statutory auditor Internal auditor Principal bankers

Beever & Struthers St George's House 215 - 219 Chester Road Manchester M154JE

Barclays Bank plc PO Box 3333 One Snowhill Snow Hill Queensway Birmingham B46GN

BOO LLP One Snowhill Snow Hill Queensway Birmingham B46GA

Registered office

4040 Lakeside Solihull Parkway Birmingham B377YN

Principal solicitors

Trowers & Hamlin 3 Bunhill Row London EC1Y 8YZ

Anthony Collins 134 Edmund Street Birmingham B32ES

2

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES REPORT OF THE BOARD

The Board present their report and audited financial statements for the year ended 31 March 2016.

The Association

The Association is a not-for-profit organisation that operates primarily within the City of Birmingham, across the counties of Herefordshire and Worcestershire and into Coventry and Solihull. As at 31 March 2016, West Mercia Homes owned a number of residential schemes providing 7,106 units of accommodation (2015: 7,076).

Principal activities

West Mercia Homes' principal activities are the development and management of social housing. The association has taken advantage of the exemption available under the Housing SORP 2014 and has not produced a strategic report as part of these financial statements. A strategic report is included with the consolidated financial statements of WM Housing Group Limited, the immediate and ultimate parent company.

Governance Code Compliance

West Mercia Homes Limited continues to follow best practice with regards to corporate governance and has adopted the NHF's Code of Governance - Promoting Board Excellence for Housing Associations. The Association has undertaken a detailed self-assessment against the Code during the year. At 31 March 2015, it had previously identified two areas of non-compliance with the Code in respect of Board terms of reference and the nine-year maximum tenure rule for Board Members. These areas of non-compliance have now been addressed, and West Mercia Homes Limited is fully compliant with the Code as at 31 March 2016.

Compliance with the Governance 6: Financial Viability Standard

The Group is regulated by the Homes 6: Communities Agency (HCA); in April 2015, the HCA revised its regulatory framework and as a consequence compliance with the Governance 6: Financial Viability Standard must be reviewed by Registered Providers at least annually and compliance certified in annual financial statements.

West Mercia Homes Limited has received assurance and is satisfied that all reasonable steps have been taken to ensure compliance with the Governance 6: Financial Viability Standard in all material aspects during the financial year 2015/16.

Regulatory Judgments

Following a recent Stability Check of the WM Housing Group, the HCA published its strapline Regulatory Judgments of the WM Housing Group on 30 March 2016, both of which represent the best judgment available to registered providers and remain unchanged from the previous grading published in 2014. The judgements rate organisations on how well they meet the HCA's standards relating to corporate governance - how well the group is run and the board's awareness of risks to the business and financial management and viability - the group's financial ability to continue to provide affordable homes in the future.

The Group's governance assessment was G1 - "The provider meets our governance requirements."

The Group's assessment was V1 - "The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios."

3


Directors' and Officers' Liability Insurance

Directors and Officers have been insured throughout the period to indemnify the Association against liability of the officers when acting for the Association.

Value for Money (VfM)

The last year has seen us complete the first phase of our major transformation project, Journey to Excellence. This programme has been the major focus of our value for money work over the last twelve months and has included:

• The introduction of a new housing management system to replace the obsolescent systems historically used in our subsidiaries

• Introduction of new integrated telephony and information networks • The rationalisation of our offices and the move of Group staff to a single building in Solihull • Opening of a new customer service centre to cover all parts of the Group • Major restructurings and service redesigns for all operating subsidiaries.

Alongside this, in the last year, we have achieved significant cost savings for our services and made a major contribution to the financial well-being of many of our customers.

As well as a number of service reviews and restructurings to reduce costs, headlines have included retendering a number of supply contracts. The total savings identified and achieved for 2015/16 and beyond alone amounts to almost £1.2 million a year across the WM Housing Group, or around 0.79% of group turnover. Details of our comparative performance on key financial and operational measures are described the financial statements of WM Housing Group Limited along with our future plans for further improvements.

As a registered provider of social housing, we must produce an annual value for money self-assessment for the WM Housing Group. This enables us to show our stakeholders how we are making use of the rents our customers pay and the improvements we are implementing to achieve even greater value. We produce this statement each year by 30 September, and it will be made available to read in full on our website at: -

http://www. wmhousing.co.uk/how-we-are-doing/value-for-money

Going concern

After making enquiries the Board has a reasonable expectation that the Association has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in the financial statements.

On 23 June 2016, the referendum regarding the UK's future membership of the European Union resulted in a majority decision in favour of leaving the EU, and the result is likely to cause considerable uncertainty in financial markets and the political world for some time to come as politicians negotiate our exit from the EU and put new arrangements in place. As a Group, WM Housing Group will continue to analyse the local and immediate impacts of the referendum as more information becomes available, and the detailed implications will be tested through our risk management and stress testing arrangements. We are confident that our business plan and stress testing are able to withstand the likely range of pressures in the short and medium term.

4


Internal controls assurance

The Board acknowledges its ultimate responsibility for ensuring that the Association has in place a system of control that is appropriate to the various business environments in which it operates. Any such system can provide reasonable but not absolute assurance against material misstatements or loss and the development of the system is a continuing process. The system of control is designed to manage key risks and to provide reasonable assurance that planned business objectives and outcomes are achieved. It also exists to give reasonable assurance about the preparation and reliability of financial and operational information and the safeguarding of the Association's assets and interests.

In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls which are embedded within the normal management and governance process. This approach includes the regular evaluation of the nature and extent of risks to which the Association is exposed and has been in place throughout the period commencing 1 April 2015 up to the date of approval of the report and financial statements. The risk assessments are updated at least annually and reported to the Board.

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

• Environment and control procedures • Appropriately qualified staff • Identification and evaluation of key risks • Information and financial reporting systems • Monitoring and corrective action • Clear policies in place for both employees and Board Members covering key risk areas (e.g.

Probity Policy, Conduct Becoming Policy, Anti-Fraud Policy, Anti-Bribery Policy and a Confidential Reporting (Whistleblowing) Policy.

BDO LLP are appointed as internal auditors for the WM Housing Group and have delivered the 2015/16 internal audit programme. The BOO Internal Audit approach complies with best professional practice, in particular, Government Internal Audit Standards and the Chartered Institute of Internal Auditors' Position Statement on Risk Based Internal Auditing.

Internal Audit provides an independent and objective assurance and consulting activity that is designed to add value to the Association's operations. It helps the Association to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

The internal control framework and the risk management process are subject to regular review by Internal Audit who advise the senior management team and report to the Group's Finance, Audit & Risk Committee.

The Finance, Audit & Risk Committee conducts an annual review of the effectiveness of the system of internal control and has taken account of any changes needed to maintain the effectiveness of risk management and control process. The Finance, Audit & Risk Committee makes an annual report to the l3oard. The Board has received this report.

The Association has in place procedures to ensure every incident is recorded on the fraud register which is reported in detail to the Finance, Audit & Risk Committee and these incidents are summarised in the

report to the Board on internal controls which is presented each year. During 2015/16 and up to the date of signing the accounts, there has been one incident with no financial loss (2015: no incidents).

5

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES REPORT OF TH E BOARD

Post Reporting Date Event

On 1 April 2016, WM Housing Group Limited purchased 100% of the issued shares in West Mercia Development Limited (5,000 x £1 shares) from West Mercia Homes Limited at cost (£5,000). This transaction means that from 1 April 2016, West Mercia Development Limited will cease to be a subsidiary of West Mercia Homes Limited and will become a direct subsidiary of WM Housing Group Limited.

Statement of the responsibilities of the Board for the financial statements

The Co-operative and Community Benefit Societies Act 2014 and registered social housing legislation require the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the association and of the Income and Expenditure for that period of account.

In preparing those financial statements, the Board is required to:

• Select suitable policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material

departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume

that the association will continue in business.

The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the association and to enable it to ensure that the financial statements comply with the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Association Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015.

It has general responsibility for taking reasonable steps to safeguard the assets of the association and to prevent and detect fraud and other irregularities

Statements as to disclosure of information to Auditor

The Board Members who held office at the date of approval of this Report confirm that, so far as they are each aware, there is no relevant audit information of which the Association's auditor is unaware, and each Board Member has taken all the steps that they ought to have taken as a Board Member to make themselves aware of any relevant audit information and to establish that the Association's auditor is aware of that information.

Auditor

Beever and Struthers are auditors to West Mercia Homes Limited and to its parent, WM Housing Group Limited as at 31 March 2016.

The report of the Board was approved on 19 July 2016 and signed on its behalf by:

Stuart Kellas Secretary

6

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF WEST MERCIA HOMES LIMITED

We have audited the financial statements of West Mercia Homes Limited for the year ended 31 March 2016 on pages 9 to 52. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Association's members, as a body, in accordance with Section 87 of the Co-operative and Community Benefit Societies Act 2015. Our audit work has been undertaken so that we might state to the Association's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Association and the Association's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of the Board and the Auditor As explained more fully in the Statement of Board's Responsibilities set out on page 6, the Board is responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council (FRC) Ethical Standards for Auditors.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Association's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Report of the Board to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements In our opinion the financial statements: • give a true and fair view of the state of the Group and Association's affairs as at 31 March 2016 and

of the surplus for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; and • have been properly prepared in accordance with the Co-operative and Community Benefit Societies

Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015.

In our opinion, the information given in the Report of the Board for the financial year for which the financial statements are prepared is consistent with the financial statements.

7

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF WEST MERCIA HOMES LIMITED

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Co-operative and Community Benefit Societies Act 2014 requires us to report to you if, in our opinion:

• a satisfactory system of control over transactions has not been maintained; or • the Association has not kept proper accounting records; or • the financial statements are not in agreement with the books of account; or • we have not received all the information and explanations we require for our audit.

Beever and Struthers Chartered Accountants and Statutory Auditors St George's House 215 - 219 Chester Road Manchester M154JE

Date: 19 July 2016

8

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Notes 2016 2015 Restated

£'000 £'000

Turnover 2 39,624 35,797

Operating Expenditure 2 (28,006) (25,019)

Other Income - Gift Aid Received 250

Operating Surplus 11,618 11,028

(Deficit)/Surplus on Disposal of Fixed Assets 8 (8) 131

Interest Receivable 9 79 91

Interest and Financing Costs 10 (6,166) (6,438)

Surplus before Tax 5,523 4,812

Taxation 11 (2) (32)

Surplus for the Year 5,521 4,780

Other Comprehensive Income for the year

Total Comprehensive Income for the Year 5,521 4,780

The consolidated results relate wholly to continuing activities and the notes on pages 16 to 52 form an integral part of these financial statements. The figures for the year ended 31 March 2015 have been restated to reflect the first time adoption of FRS102.

The financial statements on pages 9 to 52 were approved and authorised for issue by the Board on 19 July 2016 and signed on its behalf by:

John Creswell Chair

Catherine Stubbings Board Member


9


ASSOCIATION STATEMENT OF COMPREHENSIVE INCOME

Notes

Turnover 2

Operating Expenditure 2

Other Income - Gift Aid Received 2

Operating Surplus

(Deficit)/Surplus on Disposal of Fixed Assets 8

Interest Receivable 9

Interest and Financing Costs 10

Surplus before Tax

Taxation 11

Surplus for the Year

Other Comprehensive Income for the year

Total Comprehensive Income for the Year

2016 2015 Restated

£'000 £'000

35,646 33,208

(24,795) (22,784)

600 336

11,451 10,760

(8) 131

234 214

(6,166) (6,438)

5,511 4,667

5,511 4,667

5,511 4,667

The results of the association relate wholly to continuing activities and the notes on pages 16 to 52 form an integral part of these financial statements. The figures for the year ended 31 March 2015 have been restated to reflect the first time adoption of FRS102.


~d~ Chair

~5 Catherine StubJ5mgs Board Member


10


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes

Fixed Assets Tangible Fixed Assets Investments: HomeBuy Loans Receivable

12

13

Current Assets Stock Trade and other Debtors Cash and Cash Equivalents

15 16 17

Less: Creditors: amounts falling due within one year Net Current Assets

18

Total Assets less Current Liabilities

Creditors: Amounts falling due after more than one year

Total Net Assets

19

Reserves Income and Expenditure Reserve Restricted Reserve

Total Reserves

2016 2015 Restated

£'000 £'000

329,674 331,771

2,703 3,049 332,377 334,820

3,477 3,276 3,579 21,052

26,006 13,731 33,062 38,059 (13,168) (18,876) 19,894 19,183

352,271 354,003

(305,189) (312,442)

47,082 41,561

47,078 4

41,557 4

47,082 41,561

The notes on pages 16 to 52 form an integral part of these financial statements. The figures for the year ended 31 March 2015 have been restated to reflect the first time adoption of FRS102.


Chair Catherine Stubbings Board Member


11


ASSOCIATION STATEMENT OF FINANCIAL POSITION

Notes

Fixed Assets Tangible Fixed Assets Investments: Investment in Associates HomeBuy Loans Receivable

12

14 13

Current Assets Stock Trade and Other Debtors receivable within one year Debtors receivable after more than one year Cash and Cash Equivalents

15 16 16 17

Less: Creditors: amounts falling due within one year Net Current Assets

18

Total Assets less Current Liabilities

Creditors: Amounts falling due after more than one year 19

Total Net Assets

Reserves Income and Expenditure Reserve Restricted Reserve

Total Reserves

2016 2015 Restated

£'000 £'000

329,674 331,771

5 5 2,703 3,049

332,382 334,825

389 853 3,757 21,076 2,950 3,950

25,322 11,573 32,418 37,452 (12,549) (18,284) 19,869 19,168

352,251 353,993

(305,189) (312,442)

47,062 41,551

47,058 4

41,547 4

47,062 41,551



~~~ Chair


12


CONSOLIDATED STATEMENT OF CHANGES IN RESERVES

Income and Restricted Total Restricted Unrestricted Expenditure Reserve Controlling Fund Fund

Reserve Interest £'000 £'000 £'000 £'000 £'000

Balance at 1 April 2014 (Restated) 36,777 4 36,781 4 36,777

Surplus for the year 4,780 4,780 4,780

Balance at 31 March 201 5 (Restated) 41,557 4 41,561 4 41,557


Balance at 31 March 2016 47,078 4 47,082 4 47,078

The notes on pages 16 to 52 form an integral part of these financial statements.

The figures for the year ended 31 March 2015 have been restated to reflect the first time adoption of FRS102.

13


ASSOCIATION STATEMENT OF CHANGES IN RESERVES

Income and Restricted Total Restricted Un restri cted Expenditure Reserve Controlling Fund Fund

Reserve Interest £'000 £'000 £'000 £'000 £'000

Balance at 1 April 2014 (Restated) 36,880 4 36,884 4 36,880


Balance at 31 March 201 5 (Restated) 41,547 4 41,551 4 41,547

Surplus for the year 5,511 5,511 4 5,511

Balance at 31 March 2016 47,058 4 47,062 4 47,058

The notes on pages 16 to 52 form an integral part of these financial statements.


14


CONSOLIDATED STATEMENT OF CASH FLOWS

2016 2015 Restated

('000 ('000

24,102 8,120

(5,965) (6,949) 2,030 1,192

572 414 76 93

(3,287) (5,250)

(6,193) (6,222) (2,347) (1,187) (8,540) (7,409)

12,275 (4,539)

13,731 18,270 26,006 13,731

Net cash generated from Operating Activities (see below)

Cash flow from investing activities: Purchase of tangible fixed assets Proceeds from sale of tangible fixed assets Grants received Interest received

Cash flow from financing activities: Interest paid Repayment of borrowings

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year

Cash flow from Operating Activities: Surplus for the year Adjustments for non-cash items: Depreciation of tangible fixed assets Amortised grant (Increase) in stock Decrease/ (increase) in trade and other debtors (Decrease)/increase in trade and other creditors Pension costs less contributions payable Carrying amount of tangible fixed asset disposals Adjustments for investing or financing activities: Proceeds from the sale of tangible fixed assets I nterest payable Interest received Taxation expense Cash from Operations Taxation paid Net cash generated from Operating Activities

5,521 4,780

5,779 (2,008)

(201 ) 17,025 (8,753)

644 1,123

6,053 (1,995) (1,577)

(11,601 ) 6,341

(97) 1,074

(1,115) 6,166

(79) 2

(1,205) 6,438

(91 ) 32

24,104 (2)

8,152 (32)

24,102 8,120


15

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016

LEGAL STATUS

West Mercia Homes Limited is incorporated in England under the Co-operative and Community Benefit Societies Act 2014 and is registered with the Homes and Communities Agency as a Private Registered Provider of Social Housing. The registered office is: -

4040 Lakeside Soli hull Parkway Birmingham B377YN

The group comprises the following entities: -

Name Incorporation Registered / Non registered

West Mercia Development Limited Companies Act 2006 Non-registered

1. PRINCIPAL ACCOUNTING POLICIES

Basis of accounting The Group's financial statements have been prepared in accordance with applicable United Kingdom Accounting Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice for registered housing providers: Housing SORP 2014. The Group is required under the Co operative and Community Benefit Societies (Group Accounts) Regulations 1969 to prepare consolidated Group accounts.

The financial statements comply with the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015. The financial statements are prepared on the historical cost basis of accounting and are presented in sterling £.

The Group's financial statements have been prepared in compliance with FRS102 as it applies for the first time to the financial statements of the Group for the year ended 31 March 2016. In complying with FRS102 the Group meets the definition of a public benefit entity.

The Group transitioned from previous UKGAAP to FRS102 as at 1 April 2014. An explanation of how the transition to FRS102 has affected the reported financial position and performance is given in note 33.

In preparing the separate financial statements of the parent company, advantage has been taken of the following disclosure exemptions available in FRS102:

• No cash flow statement has been presented for the parent company; • Disclosures in respect of the parent company's financial instruments have not been presented as

equivalent disclosures have been provided in respect of the group as a whole; and • No disclosure has been given for the aggregate remuneration of the key management personnel

as their remuneration is included in the consolidated financial statements for the ultimate parent company, WM Housing Group, as a whole.

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1. PRINCIPAL ACCOUNTING POLICIES (Continued)

Basis of consolidation The consolidated financial statements incorporate the results of West Mercia Homes Limited and its subsidiary undertaking as at 31 March 2016 using the acquisition method of accounting as required. The results of subsidiary undertakings are included from the date of acquisition, being the date the Group obtains control.

Going Concern The Group's financial statements have been prepared on a going concern basis which assumes an ability to continue operating for the foreseeable future. Government's announcements in July 2015 impacting on the future income of the Group have led to a reassessment of the Group's business plan as well as an assessment of imminent or likely future breach in borrowing covenants. No significant concerns have been noted and we consider it appropriate to continue to prepare the financial statements on a going concern basis.

Judgements and key sources of estimation uncertainty The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the reporting date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

• Development expenditure. The Group capitalises development expenditure in respect of new developments of social and affordable rented housing. Initial capitalisation of costs is based on management's judgement that the development scheme is confirmed, usually when Board approval has taken place including access to the appropriate funding. In determining whether a project is likely to cease, management monitors the development and considers if changes have occurred that result in impairment.

• Categorisation of housing properties. The Group has undertaken a detailed review of the intended use of all housing properties. In determining the intended use, the Group has considered if the asset is held for social benefit or to earn commercial rentals. The Group has not identified any investment properties.

• Impairment. The Group has identified a cash generating unit (CGU) for impairment assessment purposes at a property scheme level.

• Provision for bad debts. The Group provides for bad debts as at 31 March each year based on a percentage scale of current tenant arrears plus 100% of former tenant arrears. The adequacy of the provision methodology is reviewed on an annual basis to ensure that provisions reflect changes in arrears experience and the implications of Welfare Reform.

17



Judgements and key sources of estimation uncertainty (Continued)

• Categorisation of debt. The Group's debt has been treated as "basic" in accordance with paragraphs 11.8 and 11.9 of FRS 102. The Group has some fixed rate loans which have a two-way

. break clause (i.e. in addition to compensation being payable by a borrower to a lender if a loan is prepaid where the prevailing fixed rate is lower than the existing loan's fixed rate, compensation could be payable by the lender to the borrower in the event that a loan is prepaid and the prevailing fixed rate is higher than the existing loan's fixed rate). The Financial Reporting Council (FRC) issued a statement on 2 June 2016 in respect of such loans with no prescriptive direction as to whether they should be classified as "basic" or "non basic". On the grounds that the Group believes the recognition of each debt liability at cost provides a more transparent and understandable position of the Group's financial position and that each loan still satisfies the requirements of paragraphs 11.8 and 11.9 of FRS 102, the Group has retained its "basic" treatment of its debt following the FRC announcement.

Other key sources of estimation and assumptions:

• Tangible fixed assets. Tangible fixed assets are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

• Pension and other post-employment benefits. The Group and its subsidiary participate in the Social Housing Pension Scheme.

The Social Housing Pension Scheme is a multi-ernployer scheme where it is not possible to identify each employer's share of the underlying assets and liabilities. As a result, the scheme is accounted for as a defined contribution scheme. The disclosures in the accounts follow the requirements of Section 28 of FRS 102 in relation to multi-employer funded schemes in which the Group has a participating interest. Contributions payable under an agreement with SHPS to fund past deficits are recognised as a liability in the Group's financial statements calculated by the repayments known, discounted to the net present value at the year ended using market rate discount factors. The unwinding of the discount is recognised as a finance cost in the Statements of Comprehensive Income in the period incurred. Further details for all pension schemes are provided in note 7.

• Impairment of non-financial assets. Reviews for impairment of housing properties are carried out when a trigger has occurred and any impairment loss in a cash generating unit is recognised by a charge to the Statement of Comprehensive Income. Impairment is recognised where the carrying value of a cash generating unit exceeds the higher of its net realisable value or its value in use. A cash generating unit is normally a group of properties at scheme level whose cash income can be separately identified.

18



Other key sources of estimation and assumptions (Continued):

• Impairment of non-financial assets (Continued) During the year the government announced a change in rent policy which resulted in a material impact on the net income expected to be collected in the future for housing properties and the Group have assessed that this represents a trigger for impairment review. Other triggers include properties that are void and have been identified as difficult to let, and properties that are vacant pending change of use.

Following a trigger for impairment, the Group perform impairment tests based on fair value less costs to sell or a value in use calculation. The fair value less costs to sell calculation is based on available data from sales transactions in an arm's length transaction on similar cash generating units (properties) or observable market prices less incremental costs for disposing of the properties. The value in use calculation is based on a depreciated replacement model. The depreciated replacement cost is based on available data of the cost of constructing or acquiring replacement properties to provide the same level of service potential to the Association as the existing property. Following the assessment of impairment no impairment losses were identified in the reporting period.

Business combinations Acquisitions of other entities in the social housing sector that are in substance a gift to West Mercia Homes Limited are treated as non-reciprocal transfers where the substance of the transaction is gifting control of one entity to another. These are also known as non-exchange transfers. In this case the fair value of the gifted assets and liabilities are recognised as a gain or loss in the Statement of Comprehensive Income account in the year of the transaction.

Turnover and revenue recognition Turnover represents rental income receivable, amortised capital grant, revenue grants from local authorities and the Homes and Communities Agency, income from the sale of shared ownership and other properties developed for outright sale and other income, and are recognised in relation to the period when the goods or services have been supplied.

Rental income is recognised when the property is available for let, net of voids. Income from property sales is recognised on legal completion. Supporting People Income is recognised under the contractual arrangements.

Operating expenditure Operating expenditure includes the actual costs of repairs and maintenance incurred during the period and the cost of sales relating to first tranche shared ownership sales. Management costs are allocated to revenue accounts on the basis of staff time allocated, except for specific items of expenditure, which are allocated directly.

19



Support income and costs including Supporting People income and costs Supporting People (SP) contract income received from Administering Authorities is accounted for as SP income in the Turnover as per note 2. The related support costs are matched against this income in the same note. Support charges included in the rent are included in the Statement of Comprehensive Income from social housing lettings note 3 and matched against the relevant costs.

Supported housing managed by agencies Social Housing Grant (SHG) for capital expenditure is claimed and incorporated within the Statement of Financial Position in line with ownership. The treatment of revenue income and expenditure in respect of supported housing projects depends solely on the agreements with the managing agents and on whether the Group entity carries the financial risk.

Where the Group entity holds the support contract with the Supporting People Administering Authority and carries the financial risk, all of the project's income and expenditure is included in the Statement of Comprehensive Income.

Where the agency holds the support contract with the Supporting People Administering Authority and carries the financial risk, the income and expenditure included is only that income and expenditure which related solely to the Group entity. Other income and expenditure of projects in this category is excluded from the Statement of Comprehensive Income.

Service Charges Service charge income and costs are recognised on an accruals basis. The Group operates both fixed and variable service charges on a scheme by scheme basis in consultation with residents. Where variable service charges are used the charges will include an allowance for the surplus or deficit from prior years, with the surplus being returned to residents by a reduced charge and a deficit being recovered by a higher charge. Until these are returned or recovered they are held as creditors or debtors in the Statement of Financial Position.

Where periodic expenditure is required a provision may be built up over the years, in consultation with the residents; until these costs are incurred this liability is held in the Statement of Financial Position within long term creditors.

Loans Since 1988 all loans, including bank/building society loans and issued bonds, have been raised from the private sector including banks, building societies and capital markets. All loan interest is accounted for on a basis which reflects the effective periodic rate of interest on the loan. Loans outstanding on the Statement of Financial Position are shown net of any premiums with the full loan outstanding being reinstated over its life by means of adjustments from the Statement of Comprehensive Income.

Costs of raising finance are set against gross loans received and the loan is then refinanced over its life by means of adjustments from the Statement of Comprehensive Income. Costs of raising finance are deemed to be finance costs of the same nature as interest.

20



Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in the Statement of Comprehensive Income, except that a change attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company's subsidiaries operate and generate taxable income.

Deferred balances are recognised in respect of all timing differences that have originated but not reversed by the reporting date, except:

• The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;

• Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and

• Where timing differences relate to interests in subsidiaries, associates and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.

Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax.

Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Value Added Tax The Group charges VAT on some of its income and is able to recover part of the VAT it incurs on expenditure. All amounts disclosed in the accounts are inclusive of VAT to the extent that it is suffered by the Group and not recoverable.

21



Tangible fixed assets and depreciation

Housing property Housing properties are shown at cost, less accumulated depreciation. The capitalised cost of developed or purchased housing properties includes the cost of acquiring land and buildings, related development staff salaries and corresponding direct overheads, interest costs on the net capital employed until the date of practical completion, major repairs capitalised and directly attributable professional fees. Following the implementation of the Statement of Recommended Practice (SORP) 2010, the cost of housing properties is allocated between land and buildings in line with National Housing Federation valuation matrix. The Group capitalises major repairs and improvement expenditure on existing housing properties in line with the requirements of the SORP. The cost of capitalised improvements is written off over the expected useful life of the components. Component lives are aligned to the assumed life within the stock condition survey database. Otherwise, such costs are taken as a charge to the Statement of Comprehensive Income in the year in which they are incurred. The useful economic lives of the properties are:

Housing Properties - 100 years from date of build Major Repairs/Improvements - over the expected life of the component

Where a housing property comprises two or more major components with substantially different useful economic lives (UELs), each component is accounted for separately and depreciated over its individual UEL. Housing properties in the course of construction and freehold land are stated at cost and are not depreciated. When a component is replaced, the existing component is fully depreciated and written off, and is replaced by the capitalisation of the replacement component as incurred. The group depreciates freehold housing properties by component on a straight line basis over the UELs of the component categories .. The table below shows the asset lives for the separately identified components within the building element of each property.

Component type Component Life (years)

Structure Insulated Render Roof Soffits & Fascias Windows Doors Bathroom Heating System Electrics Lifts Solar PV Panels Kitchen Boiler

100 100 70 30 30 30 30 30 30 30 25 20 15

The Group depreciates housing properties held on long leases in the same manner as freehold properties, except where the unexpired lease term is shorter than the longest component life envisaged, in which case the unexpired term of the lease is adopted as the useful economic life of the relevant component category.

22

WEST MERCIA HOMES LIMITED AND ITS SUBSIDIARIES NOTES TOTHE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016


Tangible fixed assets and depreciation (Continued)

Other tangible fixed assets Tangible fixed assets other than housing properties are stated at cost less accumulated depreciation. Depreciation is charged over the expected useful economic life of the asset, at the following annual rates:

Freehold Offices Leasehold Office Computer Equipment Fixtures & Fittings Office Refurbishments

- 50 years - over the life of the lease - 3 to 5 years - 4 years - 12 years

Capitalisation of interest and administration costs Interest on loans financing the development of new properties is capitalised up to the date of completion of the scheme and only when development activity is in progress. Administration costs relating to development activities are capitalised only to the extent that they are incremental to the development process and directly attributable to bringing the property into its intended use.

Property sales Property sales arise from tenants exercising their Right to Buy or Right to Acquire.

For Right to Acquire sales, the surplus represents the difference between the sales proceeds and carrying value after deduction of the required contribution to the Disposal Proceeds Fund. The surplus from the sale of Right to Buy and Right to Acquire properties is disclosed in the Statement of Comprehensive Income as a separate figure and is excluded from turnover.

Shared Ownership (Low Cost Home Ownership) properties All properties are split between fixed and current assets in line with the expectation relating to the first tranche sale percentage. The expected first tranche proportion is classified as a current asset and is held at the lower of cost and net realisable value until the point of the first tranche sale. The current asset is then transferred to cost of sales and matched against sales proceeds within the operating surplus in the Statement of Comprehensive Income. Any operating surplus is restricted to the overall surplus which takes account of the Existing Use Value - Social Housing (EUV-SH) of the remaining fixed asset element. The remaining element of the asset is classified as a fixed asset and included in fixed assets in the Statement of Financial Position at cost less any provision for depreciation or impairment.

Property managed by agents Where the Group carries the majority of the financial risk on property managed by agents, all of the income and expenditure arising from the property is included in the Statement of Comprehensive Income. Where the agency carries the majority of the financial risk, the Statement of Comprehensive Income includes only that income and expenditure which relates solely to the Group.

In both cases, the housing assets and associated liabilities are included in the Group's Statement of Financial Position.

23



Leasing and hire purchase Where assets are financed by hire purchase contracts and leasing agreements that give rights approximating to ownership (finance leases), they are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable over the term of the lease. The corresponding leasing commitments are shown as obligations to the lessor in creditors. They are depreciated over the shorter of the lease term and their economic useful lives.

Lease payments are analysed between capital and interest components so that the interest element of the payment is charged to Statement of Comprehensive Income over the term of the lease and is calculated so that it represents a constant proportion of the balance of capital repayments outstanding. The capital part reduces the amounts payable to the lessor.

Other leases are treated as operating leases and payments are charged to the Statement of Comprehensive Income on a straight-line basis over the term of the lease.

Reverse premiums and similar incentives received on leases to enter into operating lease agreements are released to Statement of Comprehensive Income over the term of the lease.

HomeBuy Under these arrangements the Group receives Social Housing Grant representing between 12Yz% and 25% of the purchase price in order to advance interest free loans to qualifying homebuyers. The buyer meets the balance of the purchase price from a personal mortgage, an element of which may be interest free for a period, and savings. In the event that a property is resold, the Group recovers the appropriate proportion of the value of the property at the time of the resale. The grant becomes recyclable when the loans are repaid up to the amount of the original grant and the extent the proceeds permit. The Group is able to retain any surplus proceeds attributable to the share of the value of the property. If there is a fall in the value of the property the shortfall of proceeds is offset against the recycled grant. Loans advanced by the Group under these arrangements are treated as concessionary loans and are initially recognised at the amount paid to the purchaser and reviewed annually for impairment. The associated Social Housing Grant received to fund these loans is recognised as deferred income until the loan is redeemed. There are no circumstances in which the Group will suffer any losses.

Valuation of investments Investments in subsidiaries are measured at cost less accumulated impairment.

Current asset investments Current asset investments include cash and cash equivalents invested for periods of more than 24 hours. They are recognised initially at cost and subsequently at fair value at the reporting date. Any change in valuation between reporting dates is recognised in the Statement of Comprehensive Income.

24



Stock and properties held for sale Shared ownership initial tranches and properties identified for outright sale are included in current assets as they are intended to be sold, at the lower of cost or estimated selling price less costs to complete and sell.

At each reporting date, properties held for sale are assessed for impairment. If there is evidence of impairment, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in Statement of Comprehensive Income.

Short-term debtors and creditors Debtors and creditors with no stated interest rate and receivable or payable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the Statement of Comprehensive Income in operating expenditure.

Non-government grants Grants received from non-government sources are recognised under the performance model. If there are no specific performance requirements the grants are recognised when received or receivable. Where grant is received with specific performance requirements it is recognised as a liability until the conditions are met and then it is recognised as Turnover.

Social Housing and other government grants Where developments have been financed wholly or partly by social housing and other grants, the amount of the grant received has been included as deferred income and recognised in Turnover over the estimated useful life of the associated asset structure (not land), under the accruals model. SHG received for items of cost written off in the Statement of Comprehensive Income is included as part of Turnover.

When Social Housing Grant (SHG) in respect of housing properties in the course of construction exceeds the total cost to date of those housing properties, the excess is shown as a current liability.

SHG must be recycled by the Group under certain conditions, if a property is sold, or if another relevant event takes place. In these cases, the SHG can be used for projects approved by the Homes and Communities Agency and Greater London Authority. However, SHG may have to be repaid if certain conditions are not met. If grant is not required to be recycled or repaid, any unamortised grant is recognised as Turnover. In certain circumstances, SHG may be repayable, and, in that event, is a subordinated unsecured repayable debt.

Non-monetary government grant On disposal of assets for which non-monetary government grants are held as liabilities in the Statement of Financial Position, the unamortised amount in creditors is derecognised and recognised as income in the Statement of Comprehensive Income.

Recycling of Capital Grant Where Social Housing Grant is recycled, as described above, the SHG is credited to a fund which appears as a creditor until used to fund the acquisition of new properties, where recycled grant is known to be repayable it is shown as a creditor within one year.

25



Disposal Proceeds Fund (DPF) Receipts from the sale of SHG funded properties less the net book value of the property and the costs of disposal are credited to the DPF, this creditor is carried forward until it is used to fund the acquisition of new social housing.

Holiday pay accrual A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the reporting date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the reporting date.

Financial Instruments Financial assets and financial liabilities are measured at transaction price initially, plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability . At the end of each reporting period, financial instruments are measured as follows, without any deduction for transaction costs the entity may incur on sale or other disposal: Debt instruments that meet the conditions in paragraph 11.8(b) of FRS 102 are measured at amortised cost using the effective interest method. Commitments to receive or make a loan to another entity which meet the conditions in para 11.8(c) of FRS 102 are measured at cost less impairment. Investments in non-puttable ordinary shares are measured at:

Fair value with changes in fair value recognised in profit or loss if the shares are publicly traded or their value can otherwise be measured reliably. At cost less impairment for all other such investments.

Financial instruments held by the Group are classified as follows: Financial assets such as cash, current asset investments and receivables are classified as loans and receivables and held at amortised cost using the effective interest method; Financial liabilities such as loans are held at amortised cost using the effective interest method; Loans to or from subsidiaries including those that are due on demand are held at amortised cost using the effective interest method; Commitments to receive or make a loan to another entity which meet the conditions above are held at cost less impairment;

26



Impairment of Financial Assets Financial assets are assessed at each reporting date to determine whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss immediately.

The following financial instruments are assessed individually for impairment: a) All equity instruments regardless of significance; and b) Other financial assets that are individually significant.

Other financial instruments are assessed for impairment either individually or grouped on the basis of similar credit risk characteristics.

An impairment loss is measured as follows on the following instruments measured at cost or amortised cost: a) For an instrument measured at amortised cost, the impairment loss is the difference between the

asset's carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate.

b) For an instrument measured at cost less impairment, the impairment loss is the difference between the asset's carrying amount and the best estimate of the amount that the entity would receive for the asset if it were to be sold at the reporting date.

If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed either directly or by adjusting an allowance account. The reversal cannot result in a carrying amount (net of any allowance account) which exceeds what the carrying amount would have been had the impairment not previously been recognised. The amount of the reversal is recognised in profit or loss immediately.

27


2. TURNOVER, COST OF SALES, OPERATING COSTS AND OPERATING SURPLUS/(DEFICIT) BY CLASS OF BUSINESS

Grou 2016 2015

Restated Turnover Operating Operating Turnover Operating Operating

Costs/Cost Surplus/ Costs/Cost Surplus/ of Sales (Deficit) of Sales (Deficit)

£'000 £'000 £'000 £'000 £'000 £'000 Social Housing Lettings (Note 3) 32,920 (22,509) 10,411 31,624 (21,248) 10,376

Other social housing activities: First tranche low cost home ownership sales 1,181 (922) 259 81 (57) 24 Charges for support services 795 (719) 76 670 (650) 20 Development services (475) (475) (466) (466) Management services 188 (49) 139 191 (79) 112 Other activities 321 321 243 243

Activities other than Social Housing Activities: Lettings (registered nursing homes) 106 (31) 75 115 (32) 83 Build for sale activities 3,978 (3,211) 767 2,589 (2,235) 354 Outright sales 135 (90) 45 284 (252) 32 Gift Aid Received 250 250

39,624 (28,006) 11,618 36,047 (25,019) 11,028


28


2. TURNOVER, COST OF SALES, OPERATING COSTS AND OPERATING SURPLUS/(DEFICIT) BY CLASS OF BUSINESS (Continued)

Association 2016 2015

Restated Turnover Operating Operating Turnover Operating Operating

Costs/Cost Surplus/ Costs/Cost Surplus/ of Sales (Deficit) of Sales (Deficit)

£'000 £'000 £'000 £'000 £'000 £'000 Social Housing Lettings (Note 3) 32,920 (22,509) 10,411 31,624 (21,248) 10,376

Other social housing activities: First tranche low cost home ownership sales 1,181 (922) 259 81 (57) 24 Charges for support services 795 (719) 76 670 (650) 20 Development services (475) (475) (466) (466) Management services 188 (49) 139 191 (79) 112 Other activities 321 321 243 243

Activities other than Social Housing Activities: Lettings (registered nursing homes) 106 (31) 75 115 (32) 83 Outright sales 135 (90) 45 284 (252) 32 Gift Aid Received 600 600 336 336

36,246 (24,795) 11,451 33,544 (22,784) 10,760


29


3. INCOME AND EXPENDITURE FROM SOCIAL HOUSING LETTINGS

Group & Association General Supported Low Cost 2016 2015 Needs Housing & Home Total Restated

Housing for Ownership Total Older

People £'000 £'000 £'000 £'000 £'000

Rents receivable net of identifiable service charge income and net of voids 21,089 3,441 3,804 28,334 26,813 Service charge income 1,809 295 327 2,431 2,676 Net rental income 22,898 3,736 4,131 30,765 29,489

Amortised Government Grants 1,494 244 270 2,008 1,995 Other Grants 109 18 20 147 140 Turnover from Social Housing Lettings 24,501 3,998 4,421 32,920 31,624

Operating Expenditure: Management (3,748) (500) (700) (4,948) (5,004) Service charge costs (2,631) (429) (474) (3,534) (3,597) Routine maintenance (3,729) (608) (673) (5,010) (4,553) Planned maintenance (907) (148) (164) (1,219) (640) Major repairs expenditure (734) (120) (132) (986 ) (1,103) Bad debts (679) (111 ) (122) (912) (219) Depreciation on housing properties (4,262) (695) (769) (5,726) (5,983) Property lease charges (130) (21 ) (23) (174) (149) Operating Expenditure on Social Housing Lettings (16,820) (2,632) (3,057) (22,509) (21,248)

Operating surplus on Social Housing Lettings 7,681 1,366 1,364 10,411 10,376

Void losses (being rental income lost as a result of property not being let, although it is available for letting) (155) (25) (28) (208) (184)

The analysis of operating costs for the year ended 31 March 2015 has been restated to ensure consistency of treatment across the WM Housing Group in respect of charges for group services from the ultimate parent.

30


4. EMPLOYEE INFORMATION

Full Time Equivalents (excluding Directors)

Group & Association 2016 2015 No. No.

81 89

2016 2015 Restated

£'000 £'000

1,877 2,492 149 188 835 150

2,861 2,830

Staff Costs for the Above Wages and Salaries Social Security Costs Other Pension Costs

The number of full time equivalents has been calculated on a 37 hour per week basis.

In addition to the staff costs shown above, costs totaling £45K (2015: £44k) in respect of key management personnel of the Association were paid for by the ultimate parent company, WM Housing Group Limited.


Group & Association

2016 2015

Full Time Equivalents split by remuneration bands of, £70,000· £79,999 £100,000 - £109,999

31


5. OPERATING SURPLUS

Groue Association 2016 2015 2016 2015

Restated Restated £'000 £'000 £'000 £'000

Operating Surplus is stated after charging

Depreciation: On Fixed Assets other than Housing Properties 53 70 53 70 On Housing Properties 5,726 5,983 5,726 5,983

Group Auditor's Remuneration (excluding VAT): In their Capacity as Auditors 17 17 15 15 I n Respect of Other Services

Operating Lease Payments: Office Premises 155 231 155 231

Bad Debts: On rents 839 199 839 199 On service charges : 73 20 73 20


32


6. DIRECTORS' AND EXECUTIVE OFFICERS' EMOLUMENTS

The Directors of the Association are defined as the Board of Management and Executive Officers as set out on page 1.

Aggregate emoluments paid to or received by Directors who are not executive staff members including salaries, honoraria or other benefits: -

Group Association 2016 2015 £'000 £'000

2016 2015 £'000 £'000

Andy Johnson John Creswell Rebecca Bennett Casserly Philip Ingle Graham Myatt Paul Taylor Stephen Sellers Peter Dunford Catherine Stubbings George Davidge Helen Scarrett Sangita Surridge Gideon White Andrew Winscom Richard Grainger John Payne Barrie Day James Brooks-Ward Roger Griffiths

2 1 2 2 1 1 1 1 1

10 5 5 4 1

8 2 1

8 8 8

2 2 2 2 1 2 1 1 1 2 1 2 1 2 2 2 2 2 2 2

1 1 1 1 1

10 5 5 5

Total 48 45 23 20

Expenses paid during the year to Association Board members amounted to £6k (2015: £7k). All executive directors fulfil Group roles and are employed directly by WM Housing Group Limited, with appropriate disclosures made in the Group financial statements.

33


7. PENSION COSTS

Membership of the Social Housing Pension Scheme (SHPS) is offered to all employees of the Group.

SHPS is a rnulti-ernployer scheme where it is not possible to identify each employer's share of the underlying assets and liabilities. As a result, SHPS is accounted for as a defined contribution scheme.

The assets of the funds are invested and managed independently of the finances of WM Housing Group. Employee contribution rates are fixed, (in the case of SHPS this is determined by their age on joining the scheme) and the employer's contribution rate is assessed in accordance with the advice of an independent and professionally qualified actuary.

THE PENSIONS TRUST - SOCIAL HOUSING PENSION SCHEME

West Mercia Homes Limited participates in the Social Housing Pension Scheme, a multt-ernployer scheme which provides benefits to some 500 non-associated employers. The scheme is a defined benefit scheme in the UK. It is not possible for the group to obtain sufficient information to enable it to account for the scheme as a defined benefit scheme. Therefore it accounts for the scheme as a defined contribution scheme.

The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December 2005. This, together with documents issued by the Pensions Regulator and Technical Actuarial Standards issued by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK.

The scheme is classified as a 'last-man standing arrangement'. Therefore the participating Associations are potentially liable for other participating employers' obligations if those employers are unable to meet their share of the scheme deficit following withdrawal from the scheme. Participating employers are legally required to meet their share of the scheme deficit on an annuity purchase basis on withdrawal from the scheme.

A full actuarial valuation for the scheme was carried out with an effective date of 30 September 2014. This actuarial valuation was certified on 23 November 2015 and showed assets of £3,123m, liabilities of £4,446m and a deficit of £1 ,323m. To eliminate this funding shortfall, the trustees and the participating employers have agreed that additional contributions will be paid, in combination from all employers, to the scheme as follows:

Deficit contributions: -

Tier 1 From 1 April 2016 to 30 September 2020: £40.6m per annum (payable monthly and increasing

by 4.7% each year on 1 st April) Tier 2 From 1 April 2016 to 30 September 2023: £2B.6m per annum (payable monthly and increasing

by 4.7% each year on 1 st April) Tier 3 From 1 April 2016 to 30 September 2026: £32.7m per annum (payable monthly and increasing

by 3.0% each year on 1st April) Tier 4 From 1 April 2016 to 30 September 2026: £31.7m per annum (payable monthly and increasing

by 3.0% each year on 1 st April)

34


7. PENSION COSTS (Continued)

THE PENSIONS TRUST - SOCIAL HOUSING PENSION SCHEME (Continued)

Note that the scheme's previous valuation was carried out with an effective date of 30 September 2011; this valuation was certified on 17 December 2012 and showed assets of £2,062m, liabilities of £3,097m and a deficit of £1,035m. To eliminate this funding shortfall, payments consisted of the Tier 1, 2 & 3 deficit contributions.

Where the scheme is in deficit and where the participating Association has agreed to a deficit funding arrangement, the participating Association recognises a liability for this obligation. The amount recognised is the net present value of the deficit reduction contributions payable under the agreement that relates to the deficit. The present value is calculated using the discount rate detailed in these disclosures. The unwinding of the discount rate is recognised as a finance cost.

PRESENT VALUES OF PROVISION

RECONCILIATION OF OPENING AND CLOSING PROVISIONS Group &

Association 2016 2015 £'000 £'000

Provision at start of period Unwinding of the discount factor (interest expense) Deficit contribution paid Remeasurements - impact of any change in assumptions Remeasurements - amendments to the contribution schedule

1,770 32

(193) (15) 820

1,816 51

(185) 88

Provision at end of period 2,414 1,770

Due within one year (See note 18) Due in more than one year (See note 19)

275 2,139

193 1,577

2,414 1,770

INCOME AND EXPENDITURE IMPACT

Group & Association

2016 2015 £'000 £'000

I nterest expense Remeasurements - impact of any change in assumptions Remeasurements - amendments to the contribution schedule Contributions paid in respect of future service' Costs recognised in income and expenditure account'

32 (15) 819 (193)

51 88

(185) 643 (46)

"incluces defined contribution schemes and future service contributions (I.e. excluding any deficit reduction payments) to defined benefit schemes which are treated as defined contribution schemes. To be completed by the company.

35


7. PENSION COSTS (Continued)

THE PENSIONS TRUST - SOCIAL HOUSING PENSION SCHEME (Continued)

ASSUMPTIONS

31 March 31 March 31 March 2016 2015 2014 % per % per % per annum annum annum

Rate of discount 2.06 1.92 3.02

The discount rates shown above are the equivalent single discount rates which, when used to discount the future recovery plan contributions due, would give the same results as using a full M corporate bond yield curve to discount the same recovery plan contributions.

8. DEFICIT/(SURPLUS) ON DISPOSAL OF FIXED ASSETS

Housing Properties

Group & Association

Land Other Fixed Assets

('ODD ('ODD

25 (55)

('ODD Sale of Fixed Assets: Proceeds from disposal Net Book Value of disposals Lender costs Administration costs of disposal Recycled Capital Grant SHG Abated

1,090 (709) (90) (10)

(300) 41

2016 2015 Total Total

('ODD ('ODD

1,115 1,205 (764) (763) (90) (41 ) (10) (14)

(300) (311 ) 41 55

(8) 131 (Deficit)/Surplus on Sale of Fixed Assets (55) 22 25

9. INTEREST RECEIVABLE

Group 2016 2015 ('ODD ('ODD

Interest receivable on unlisted investments 79 91

Association 2016 2015 ('ODD ('ODD

234 214

The Association does not retain any balances in its account overnight and therefore does not earn any interest.

36


10. INTEREST AND FINANCING COSTS Group &


Restated £'000 £'000

Other interest

Bank Loans Repayable by instalments wholly or partly in more than 5 years Other interest Capitalisation of development interest payable

32 51

5,338 823 (27)

5,684 818 (115 )

6,166 6,438

The capitalisation rate used to determine finance costs capitalised was 4.25% (2015: 4.21%).


11. TAXATION

The Association is a charitable Co-operative and Community Benefit Society and, providing income is derived from its primary purpose, there is no liability for Corporation Tax. The consolidated tax charge for the year reflects the trading activities of the non-charitable subsidiary.

Grou~ Association 2016 2015 2016 2015


UK Corporation Tax UK Corporation Tax on surplus for the period 2 2

Deferred Tax Originating and reversal of timing differences 30

2 32

The tax assessed on the surplus on ordinary activities for the period is lower than the standard rate of Corporation Tax in the UK of 20% (2015: 21%): -

Surplus on ordinary activities before tax 5,523 4,812 5,511 4,667

Corporation Tax calculated as surplus on activities before tax, multiplied by 20% (2015: 21%) 1,105 1,011 1,102 980

Effect of: Exempt charitable activities (983) (981 ) (1,102) (980) Adjustments in respect of previous periods (28) Qualifying charitable donations (120)

UK Corporation Tax on surplus/(deficit) for the period 2 2

We are not aware of any circumstances which would materially impact any future tax charges. The figures for the year ended 31 March 2015 have been restated to reflect the first time adoption of FRS102.

37

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12. HOUSING PROPERTIES (Continued)

Group & Association

Housing Other 2016 2015 Properties Fixed Restated

Assets £'000 £'000 £'000 £'000

Net Book Value of Housing Properties and Other Fixed Assets comprises: - Freehold land and buildings 327,372 327,372 329,481 Long leasehold land and buildings 94 94 186 Short leasehold land and buildings 2,180 2,180 2,061

329,552 94 329,646 331,728

Total expenditure on works to existing properties: Replacement components capitalised Amounts charged to Income and Expenditure account

1,790 986

1,864 1,103

2,776 2,967

Cumulative interest capitalised during the development period to 31 March 2016 amounted to £5,513k (2015: £5,486k).

Housing properties for letting includes the cost of two nursing homes shown under non-social housing activities in Note 2. The cost of these properties is £751 k, which is part-funded by grants of £280k from a regional health authority.


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13. HOMEBUY LOANS RECEIVABLE

Group & Association 2016 2015 £'000 £'000

HomeBuy Loans made by the Group: - At the start of the year Loans advanced Loans repaid

3,049 3,225

(346) (176)

At the end of the year 2,703 3,049

HomeBuy Grants received from the Homes & Communities Agency: - At the start of the year Grants received. Grants repaid/recycled

3,102 3,278

(335) (176)


The Association has received grants from the Homes & Communities Agency in total up to 31 March 2016 of £2,767k (2015: £3,102k). This money has been loaned to people qualifying under the HomeBuy Scheme. The grants received are disclosed within Creditors: Amounts falling due in more than one year (see note 19).

14. FIXED ASSET INVESTMENT IN SUBSIDARY UNDERTAKING

West Mercia Development Limited is a subsidiary organisation for incorporation into the Consolidated Financial Statements of West Mercia Homes Limited (the Association) in accordance with the Co-operative and Community Benefit Societies Act 2014. West Mercia Development Limited is a non-regulated company limited by shares. The principal activity of West Mercia Development Limited is the development of new build properties for outright sale.

Association 2016 2015 £'000 £'000

COST OF INVESTMENT 5 5

Details of the West Mercia Homes Limited subsidiary at 31 March 2016:

Name Percentage of share held

West Mercia Development Limited 100%

40


15. STOCK

Properties held for resale: - Shared ownership properties (completed) Build for sale properties (completed) Build for sale properties (work in progress)

Group 2016 2015 £'000 £'000

389 853 645 147

2,443 2,276

3,477 3,276

Group 2016 2015


1,469 836 (1,089) (357)

380 479 112 141 375 377 785 2,244 625 3,384

1,302 14,427

3,579 21,052

16. TRADE AND OTHER DEBTORS

Amounts receivable within one year Rental debtors Less: Provision for bad debts

Trade debtors Prepayments and accrued income Other debtors Social Housing Grant receivable Amounts due from Parent Amounts due from Subsidiary Undertaking

Amounts falling due after one year Loan repayable by Subsidiary Undertaking

Association 2016 2015 £'000 £'000

389 853

389 853



1,469 836 (1,089) (357)

380 479 112 141 375 377 950 2,251 625 3,384

1,302 14,427 13 17

3,757 21,076

2,950 3,950

6,707 25,026 3,579 21,052

Former tenant rent arrears of £452k (2015: £601 k) are fully provided for and are therefore not included within the rental debtors or provision balances above.


17. CASH AND CASH EQUIVALENTS

Group Association 2016 2015 2016 2015


Short-term, highly liquid investments 8,232 8,168 8,232 8,168 Cash at bank 17,774 5,563 17,090 3,405

26,006 13,731 25,322 11,573


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18. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Group Association

2016 2015 Restated

£'000 £'000

2016 2015 Restated

£'000 £'000

Housing Loans (See note 20) 4,871 2,346 4,871 2,346 Trade creditors 242 292 SHG received in advance 37 1,178 37 1,178 SHG received in advance (for third parties) 625 1,185 625 1,185 Rents received in advance 935 465 935 465 Amounts due to subsidiary undertakings 942 6,888 936 6,787 Accruals and deferred income 2,632 4,332 2,263 4,135 Deferred capital grant (See note 21) 2,008 1,995 2,008 1,995 SHPS pension agreement plan (See note 7) 275 193 275 193 Tax and social security 2 2 Recycled Capital Grant Fund (See note 23) 559 559 Disposal Proceeds Fund (See note 22) 40 40

13,168 18,876 12,549 18,284


19. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

Group & Association

2016 2015 Restated

£'000 £'000

HomeBuy Loans (See note 13) Housing Loan (See note 20) Other Creditors Disposal Proceeds Fund (See note 22) Recycled Capital Grant Fund (See note 23) Deferred capital grant (See note 21) SHPS pension agreement plan (See note 7)

2,767 145,528

507

3,102 150,400

488 40

1,419 155,416

1,577

1,103 153,145 2,139

305,189 312,442


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20. DEBT ANALYSIS

Loans from banks and building societies and are all secured by specific charges on the Association's housing properties. The loans accrue interest at varying rates and are repayable in instalments as or otherwise shown below:


Bank/building society loans Amounts payable by instalments: Repayable within one year Repayable between one and two years Repayable between two and five years Repayable after five years

2,371 3,146 14,073

118,309

2,346 2,372

10,324 125,204

137,899 140,246 Amounts repayable otherwise than by instalments: Repayable within one year Repayable between one and two years Repayable after five years

2,500

10,000 2,500 10,000

Less: amount shown in Creditors: amounts falling due within one year (note 18) 150,399

(4,871) 152,746

(2,346)

Housing Loans falling due after more than one year 145,528 150,400

21. DEFERRED CAPITAL GRANT

Group & Association 2016 2015


At the start of the year (Restated) 157,411 158,670

Grant received in the year 11O 1,034 Transfer from RCGF / DPF 1 67 Disposals (361 ) (365) Released to income in the year (2,008) (1,995)


Amount due to be released < 1 year 2,008 1,995 Amount due to be released> 1 year 153,145 155,416

155,153 157,411

The figures for the year ended 31 March 2015 have been restated to reflect the first time adoption of FRS1 02.

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22. DISPOSAL PROCEEDS FUND (DPF)

Opening balance DPF acquired with subsidiary undertaking

Inputs: Funds recycled Net PRTB receipts Certain proceeds of profit making PRPs Interest accrued Transfers from other PRPs

Use/allocation of funds: New build Major repairs and works to existing stock Transfers to other PRPs Other

Repayment of funds to the HCAIGLA

Amounts 3 years or older where prepayment may be required

Amount due < 1 year Amount due > 1 year

All DPF balances pertain to activities within areas covered by the HCA.

Group 6: Association 2016 2015 £'000 £'000

40

40

40 40

40 40

40 40

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23. RECYCLED CAPITAL GRANT FUND (RCGF)

Group a Association 2016 2015 £'000 £'000

Opening balance 1,419 1,152

Inputs to RCGF: Grants recycled Interest accrued Transfers from other PRPs

685 8

375 7

Use/allocation of funds: New build Major repairs and works to existing stock Transfer to other PRP's Other

(1 )

(445) (4)

(115 )

Repayment of grant to the HCAIGLA

Closing balance 1,662 1,419

Amounts 3 years or older where prepayment may be required

Amount due < 1 year Amount due > 1 year

559 1,103 1,419

1,662 1,419

All RCGF balances pertain to activities within areas covered by the HCA.

24. SHARE CAPITAL

Group & Association 2016 2015

£ £

Allotted, issued and fully paid shares of £1 each: At 31 March 11 11

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

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25. COMMITMENTS

(a) Capital Commitments

Group Association 2016 2015 £'000 £'000

2016 2015 £'000 £'000

Capital Expenditure, which has been contracted for but has not been provided for in the financial statements 7,047 11,540 5,421 7,337

Capital Expenditure, which has been authorised under authority from the Board but has yet to be contracted for 3,477 1,359 1,917 1,359

The contracted amounts above relate to expenditure on new development schemes in the Association's areas of operation which are funded by a combination of rental income, borrowings and grant from the Homes and Communities Agency. There is an element of contracted expenditure in relation to the 2016/17 major works programme, which is funded by a combination of rental income and borrowings.

(b) Operating Lease Commitments


Operating leases which expire: Within one year In the second to fifth years inclusive Over five years

283 276

All of the above operating leases relate to land and buildings.

26. CONTINGENT LIABILITIES

There are no contingent liabilities identified at either 31 March 2016 or 31 March 2015.

27. GRANT AND FINANCIAL ASSISTANCE

Group 2016 2015 £'000 £'000

The total accumulated government grant and financial assistance received or receivable at 31 March:

Grant and financial assistance received or receivable Recognised as income in the Statement of Comprehensive Income Held as deferred capital grant (See note 21)

183,267 (28,114)

183,517 (26,106)

155,153 157,411

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28. ACCOMMODATION OWNED, MANAGED AND IN DEVELOPMENT

GROUP 2016 2015

Restated Owned Managed Homes Homes

Owned Managed Homes Homes

Social Housing Under development at end of year: - General needs housing social rent - General needs housing affordable rent - Low cost home ownership

38 11

13 11 5

Under management at the end of the year: - General needs housing social rent - General needs housing affordable rent - Intermediate market rent housing - Supported housing - Low cost home ownership

4,114 397 225 714 935

41 4,108 383 225 739 929

41

15 13

15 12

6,434 69 6,413 68

Non-social Housing Nursing and care homes Retained freeholds and estate charges Market Rent

68 650

3 85

68 621

3 85

7,155 154 7,105 153


29. ACCOMMODATION OWNED AND MANAGED BY OTHERS

Managed by others at the end of the year: - General needs housing social rent - General needs housing affordable rent - Intermediate market rent housing - Supported housing - Shared ownership -Retained freeholds and estate charges

GROUP 2016 2015

Restated Homes Homes

1,316 1,316 110 109 128 128 346 365 439 432 347 348

2,686 2,698


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30. RELATED PARTIES

West Mercia Homes Limited is the Parent entity in the Group. The ultimate controlling party is WM Housing Group Limited. The Group has taken advantage of the exemption available under Section 33 FRS 102 not to disclose transactions with wholly owned subsidiary undertakings.

The following are related parties: • The Boards of some members of the Group have tenant members who hold tenancy

agreements on normal terms and cannot use their position to their advantage. The total of rent charged to the Tenant Board members in the year was £8k (2015: £8k). There are no arrears on their tenancies at the reporting period end (2015:£Nil).

• Transactions with key management personnel and their close family, (including compensation paid).

• Related party balances are not secured. • Transactions with registered and non registered elements of the business • The Association provides management services, other services and loans to its direct and

fellow subsidiaries.

Relationships between registered and non-registered elements of the business

WM Housing Group Limited [R] WMHG West Mercia Development WMD Limited

Whitefriars Housing Group WF WM Treasury plc WMT Limited [R] West Mercia Homes Limited [R] WMH Whitefriars Business Services WBS

Limited Optima Community Association OCA Attwood Green Estate Services AGES [R] Limited Family Housing Association FHA (Birmingham) Limited [R]

WMHG WF WMH OCA FHA WMD WMT WBS AGES WMHG it,;; ./ ./ ./ ./ ./ , ril' I,

WF ./ CfP I> ./ ./ ./ ./ ./ 'I'

WMH ./ ./ ./

OCA ./ ./ ./ ./

FHA ./ ./

WMD ./ ./ ./ ,,'I WMT ./

WBS ./ ,

AGES ./

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30. RELATED PARTIES (Continued)

Transactions with registered elements of the business The Association receives services from Group parent and fellow subsidiary and provides management services to other entities. It also provides a loan facility to West Mercia Development Limited.

WMHG WF OCA FHA WMD WBS AGES £'000 £'000 £'000 £'000 £'000 £'000 £'000

2016 4,660 7 2,319 - 755 - - 2015 4,671 7 2,197 - 209 - -

Transactions with non-registered entities

West Mercia Homes provides a £5m loan facility to its trading subsidiary, West Mercia Development limited. During the year ended 31 March 2015, a further £10m loan facility from Whitefriars Housing Group Limited to West Mercia Development Limited was also approved. Financial transactions between West Mercia Homes Limited/Whitefriars Housing Group Limited and West Mercia Development Limited consist only of loan advances and interest costs.

Non-regulated Transaction Loan repaid Balance at Basis of Interest subsidiary in year year end interest Charged in

charged year ended 31 March

2016 £'000 £'000 £'000

West Mercia Advance of loan facility 3.75% above Development from West Mercia 1,000 2,950 UBOR 155 Limited Homes Limited West Mercia Advance of loan facility 3.75% above Development from Whitefriars - - UBOR - Limited Housing Group Limited

In March 2016 West Mercia Development Ltd declared a gift aid payment to West Mercia Homes Limited of £600k (2015: £86k).

During 2016 West Mercia Development Ltd received £1.39m of SHG and passed £1.43m of SHG on to other entities.

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31. FINANCIAL INSTRUMENTS

The Group's and Company's financial instruments may be analysed as follows:

2016 2015 ('000 ('000

Financial assets (a) Financial assets that are debt instruments measured at amortised cost (b) Financial assets that are equity instruments measured at cost less

impairment

32,029 36,599

Financial liabilities (a) Financial liabilities measured at amortised cost (b) Derivative financial instruments designated as hedges of variable interest

rate risk (c) Financial liabilities measured at fair value through profit or loss (d) Loan commitments measure at cost less impairment

(318,357) (331,318)

Financial assets measured at amortised cost comprise cash, cash equivalents, trade debtors, other debtors and amounts owed by Group undertakings.

Financial liabilities measured at amortised cost comprise bank loans, debenture stock, trade creditors, other creditors and amounts owed to Group undertakings.

32. POST REPORTING DATE EVENT

On 1 April 2016, WM Housing Group Limited purchased 100% of the issued shares in West Mercia Development Limited (5,000 x £1 shares) from West Mercia Homes Limited at cost (£5,000). This transaction means that from 1 April 2016, West Mercia Development Limited will cease to be a subsidiary of West Mercia Homes Limited and will become a direct subsidiary of WM Housing Group Limited.

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33. FIRST TIME ADOPTION OF FRS102

On adoption of FRS 102 the Group and Association have restated the comparative figures for the year ended 31 March 2015. The impact on total reserves is as follows:

Reserves as at Total Total

GROUP transition Recognised reserves date Surplus as at

Note Year ended 1 April 31 March 31 March 2014 2015 2015 £'000 £'000 £'000

As previously stated under former UK GAAP 33,858 4,650 38,508

Transitional adjustments Increase in depreciation of housing properties a (19,346) (1,913) (21,259) Increase in amortisation of grants relating to housing properties b 24,111 1,995 26,106 Inclusion of holiday pay accrual c (26) 2 (24) Inclusion of SHPS pension deficit payment liability d (1,816) 46 (1,770)

As stated in accordance with FRS 102 36,781 4,780 41,561

Reserves as at Total Total

ASSOCIATION transition Recognised reserves date Surplus as at

Note Year ended 1 April 31 March 31 March 2014 2015 2015 £'000 £'000 £'000

As previously stated under former UK GAAP 33,961 4,537 38,498

Transitional adjustments Increase in depreciation of housing properties a (19,346) (1,913) (21,259) Increase in amortisation of grants relating to housing properties b 24,111 1,995 26,106 Inclusion of holiday pay accrual c (26) 2 (24) Inclusion of SHPS pension deficit payment liability d (1,816) 46 (1,770)

As stated in accordance with FRS 102 36,884 4,667 41,551

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33. FIRST TIME ADOPTION OF FRS102 (Continued)

Explanation of changes to previously reported profit and equity:

a. FRS102 requires that capital grant previously deducted from the cost of fixed assets, is treated as creditors where the fixed assets are carried at cost. The effect compared to current UK GAAP is an increase to the carrying cost of housing properties resulting in an increase in the consolidated group and association depreciation at transition of £19,346k and a decrease in the consolidated group and association surplus for the year ended 31 March 2015 of £1, 913k.

b. FRS102 requires that government capital grant previously deducted from the carrying cost of housing properties is treated as a deferred capital grant creditor and released to the statement of comprehensive income over the useful life of the associated assets. The effect compared to current UK GAAP is an increase in consolidated group and association income recognised on transition of £24,111 k, and £1, 995k increase in surplus for the year ended 31 March 2015.

c. FRS102 requires that the cost of unused entitlement and short term employee benefits is measured and recognised in the reporting period. The effect is that unused holiday entitlement has now been recognised as an accrual at the reporting period date. This has resulted in a decrease of consolidated group and association reserves at transition of £26k and an increase in the consolidated group and association surplus for the year ended 31 March 2015 of £2k.

d. FRS102 requires that a liability is recognised for the contributions that arise from an agreement to fund a deficit in a multi-employer pension scheme. The effect is that a liability for the SHPS payment plan has been recognised at the present value of the contributions. This has resulted in a decrease in consolidated group and association reserves of £1,816k at transition and an increase in the consolidated group and association surplus in the year ended 31 March 2015 of £46k.

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