Financial Reports Colne Housing Society Ltd For the year ...STRATEGIC REPORT INCORPORATING THE...

Financial ReportsColne Housing Society LtdFor the year ended March 31 2019

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Contents

Strategic report ....................................................................................................................................... 3

Background ......................................................................................................................... 3

Operating environment .................................................................................................. 4

Financial review ................................................................................................................. 6

Value for money ................................................................................................................. 9

Governance .......................................................................................................................14

Board Members, Executive Directors, advisers and bankers ................................................16

Independent auditor’s report ..........................................................................................................18

Statement of comprehensive income ..........................................................................................20

Statement of financial position .......................................................................................................21

Statement of changes in reserves ..................................................................................................22

Statement of cash flows .....................................................................................................................23

Notes to the financial statements ..................................................................................................24

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COLNE HOUSING SOCIETY LIMITED STRATEGIC REPORT INCORPORATING THE OPERATING AND FINANCIAL REVIEW

BACKGROUND

Colne Housing Society Limited (“Colne”) is an exempt charity registered under the Co-operative and Community Benefits Societies Act 2014, Registration Number 20799R and is registered with the Regulator of Social Housing (“RSH”) and Homes England (“HE”).

Colne is the entity in which all property and debt is embedded and employs all our employees.

Colne owns and manages over 3,000 homes throughout north Essex and south Suffolk. We work with nine local authorities and many community groups and partners throughout East Anglia.

We are a vibrant, growing housing association specialising in enabling independent living. We want to meet housing need in East Anglia.

We strive to provide a range of new homes of all types of tenure to meet the needs of our current and future customers in Essex, Suffolk and beyond.

We will encourage our customers to shape their own solutions offering appropriate support where needed. We provide a range of high-quality services designed in response to our customers’ needs.

However, it is not just what we do, but how we do it, which is integral to us. How we work with our residents, other customers, staff and partners defines who we are as an organisation. Therefore, our values are important to us as they reflect our culture, our ethos and are an integral part of the services we deliver.

Colne owns 100% of the shares in Riverview Homes Limited (“Riverview”), a wholly owned subsidiary registered in England & Wales. Riverview has been dormant since incorporation.

Colne also owns 33% of the shares in a development company, Iceni Homes Limited (“Iceni”), registered in England and Wales. The principal activity of Iceni is the provision of property development services. Iceni is an active entity and Colne receives gift aid from Iceni. The remaining 67% is owned equally by two other registered providers (“RPs”).

We also operate private sector leasing and empty homes schemes to support homeless people back into accommodation. Colne also acts as Corporate Trustee for the Fuller Almshouse.

Our mission during 2018/19 was to: Focus on providing the best services in a way which reflects the diverse needs of our customers by;

• Influencing solutions with a co-ordinated approach which enables communities to be self-reliant, healthy and safe.

• Providing a range of rental and home ownership options that address the changing anddiverse needs of people in East Anglia

• Launching a new customer service model which reflects our strategic commitments toenhance services through digital provision whilst actively supporting the most vulnerable.

• Building on the vision of a region united by common purpose; one that binds its strengths andseeks to do more.

The values that drive this mission are: • Pride – in our organisation, in our professionalism and in our work.• Team spirit – in our approach to shaping the best solutions for our customers.• Taking personal responsibility– we will never pass the buck.• And we will ensure that along the way we have plenty of fun!

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COLNE HOUSING SOCIETY LIMITED STRATEGIC REPORT INCORPORATING THE OPERATING AND FINANCIAL REVIEW (continued) OPERATING ENVIRONMENT Over the last year Colne’s operating environment has been influenced by a number of external and internal factors. In the summer of 2018, the Government published its long-awaited Green Paper on social housing. The paper emphasised the importance of listening to tenants’ voices, tackling the stigma of social housing and maintaining and enhancing the safety of people in their homes. Colne has a long tradition of working with customers and shaping its services and in the last year has invested considerable time and resources to enhance its management of compliance ensuring our customers live in homes that are well maintained and safe. Whilst the Government has yet to publish further information, which is expected in September 2019, Colne is well-placed to address any new regulations, including more active regulation of the Consumer Standards. Welfare reform and the continuing roll-out of Universal Credit has continued to present challenges for customers. The level of arrears as a result of more customers receiving Universal Credit has remained manageable but Colne continues to monitor performance in this area so that it can offer support and early interventions with customers, to help those affected to maintain their tenancies. The Government has also agreed a rent settlement that enables Registered Providers to increase their rents. Colne’s Board is reviewing its approach to rents so that it can balance the opportunities to build more homes through increased rent against ensuring customers are able to afford their rent. As the United Kingdom continues to see the rise in benefit, and income more generally, Colne will be examining closely how it can enhance its work in tackling the housing crisis with the needs of current customers. As with many sectors, the proposed departure from the European Union has required Colne to ensure that it is able to continue to operate effectively in the event of a no-deal scenario. The Bank of England’s assessment of the impact of a disorderly exit has been included within Colne’s financial plans and, although the situation remains somewhat unpredictable, Colne is well prepared to continue to meet its corporate objectives. Colne has an ambitious development programme for its size, which is delivered through its part-owned subsidiary Iceni and Colne remains the lead partner with Homes England. The availability of increased levels of grant has helped to ensure Colne can continue to be a significant developer within north Essex. Unlocking Eastern Potential In February 2019, Colne issued its prospectus ‘Unlocking Eastern Potential’ seeking potential partners to help to solve the challenges for the region in the longer term and explored the opportunity to create a new housing association of at least 10,000 homes centred in north Essex. The potential to create a new association would deliver considerable additional capacity for Colne and its partner and would enable considerable value for money savings from stock rationalisation, increased borrowing capacity and, over time, reduced operating costs. After reviewing submissions from a range of providers over several months, Colne’s Board has decided to explore the opportunity further in detail with Greenfields Community Housing Limited, a charitable registered social landlord.

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COLNE HOUSING SOCIETY LIMITED STRATEGIC REPORT INCORPORATING THE OPERATING AND FINANCIAL REVIEW (continued)

Internal controls and principal risks

The Board recognises that it is ultimately responsible for the system of internal controls and the management of risk within the organisation, ensuring compliance with the appropriate regulatory standards and the adopted Code of Governance.

The key controls within Colne are:

• Rules and standing orders establishing key operating principles.• Financial regulations detailing responsibilities for expenditure and authorisation of payments• Written procedures and policies for a variety of matters• Risk management framework process including clearly articulated Board risk appetite• A strong performance management framework• Programme of internal audit reports against a programme agreed with the Audit Committee• An annual report provided to Audit Committee by internal and external auditors and regular

progress updates• Stress tested long term financial plan demonstrating to the Board the ability to withstand a

wide range of adverse scenarios• Codes of Conduct and registers for hospitality and declarations of interests

Although Colne has a number of control mechanisms in place, the system of internal controls can only provide reasonable and not absolute assurance against material mis-statement or loss. The Board is committed to making appropriate improvements to controls in order to balance control with efficiency. The Audit Committee is responsible for receiving reports on risk and internal audit on behalf of the Board. The Committee challenges and scrutinises the reports to ensure that adequate steps are taken to mitigate identified risks. The Audit Committee reports regularly to the Board on its work.

Colne makes use of external advisers to conduct its internal audit. Internal audit differs from other sources of assurance in that it can provide independent and objective assurance across the whole range of an organisation’s activities. The annual report from Colne’s internal auditors shows that they undertook full audits in four areas during the year, two received substantial assurance and two adequate assurance. The internal auditor also undertook two compliance reviews and one advisory review to provide specific assurance to the Board of the effectiveness of controls in key areas of operation.

The Board has adopted a Risk Strategy (2016-19) and supporting policy ‘internal controls and risk management’. This contains the following elements of policy:

• The Board will annually review and approve the summary of key risks and the methods to be used for managing them;

• The Chief Executive will implement the risk management decisions of the Board, including the allocation of responsibility for risks to individual members of staff and the maintenance of an effective system of internal control;

• The Board has responsibility for monitoring the effectiveness of the system of internal control on an ongoing basis. It does this formally at least once a year. The Board also reviews the contents of the external auditor’s management letter and the management response;

• Colne engages Mazars LLP as internal audit provider to review its systems of internal control. Reports are made to the Audit Committee who present summary reports to the Board;

• The Chief Executive will ensure that routine management reports confirm that internal controls and other risk management procedures are operating as intended. As part of this, the Executive assess risk and controls and provide a formal assurance statement to the Board on a quarterly basis. For transparency purposes, this is included in the Audit Committee packs at each meeting.

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Colne’s risk universe (2018/19) comprises nine strategic risks, set out in the table below with the key risk management activities.

Risk Risk management activity and mitigations Compliance with health and safety and associated legislation

• Independent Health & Safety advisors appointed• Regular compliance reporting to Board, Executive and

Health & Safety Committee• Fully reported Fire Risk Assessment compliance• Health & Safety Helpline to CEO in place• Specialist Property Compliance Officers in post

Compliance with Regulatory Standards

• Comprehensive policy framework• Compliance reporting to Board and Audit Committee• Internal audit programme

Compliance with lender agreements and financial controls

• Treasury Management Policy in place and compliancereported to Treasury Committee

• Independent treasury advisors appointed• Compliance included in monthly reporting to Executive

Compliance with data regulations

• Data Protection Policy and procedures updated to reflectGDPR and DPA 2108

• All staff have completed updated training on data protection• Internal auditors completed health check review on GDPR

Low quality or dirty data damages integrity

• Information Asset Register in place• Data project underway to further improve data governance

Failure to adopt business technology

• Building our Futures restructure implemented mobile working• Remote hosted infrastructure updated

Failure to recruit or retain skilled staff

• Building our Futures restructure completed• Revised People Strategy in place• Investors In People silver award

Welfare reform affecting income recovery rates

• Budgeting and welfare advice provided to customers• Financial plan stress tested for large increase in bad debt• Income team highly skilled and delivering strong results

Iceni Homes viability • Colne membership of Iceni Board, which is implementing anew growth strategy

• Colne financial plan includes continued development activity

FINANCIAL REVIEW

The Board is pleased to report another successful year in terms of financial performance.

Turnover for the year was stable at £20.3m (2018: £20.2m) and was principally income from lettings and first tranche shared ownership sales. Rents were charged in line with legislation and guidance. Rent losses through void properties were £112k (2018: £142k), which represents 0.6% (2018: 0.8%) of the rents and service charges receivable.

Turnover from social housing lettings increased by 2.5%, despite the continued 1% per annum rent reduction, the uplift is the result of new units developed.

The operating surplus of £7.5m (2018: £7.2m) represents a margin of 37.0% (2018: 35.3%) which is among the strongest in the sector. The 2018 Global Accounts published by the Regulator of Social Housing shows a median operating margin of 28.9% and upper quartile of 34.1% for providers owning more than 1,000 homes.

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The operating margin on social housing lettings was 37.0% (2018: 35.1%) which again is in the upper quartile (2018 Global Accounts upper quartile: 37.1%).

During the year the trustees of the Social Housing Pension Scheme were able to provide pension scheme performance and accounting data to individual employers for the first time. As a result Colne has recognised its Social Housing Pension Scheme (SHPS) liability as a defined benefit liability at 31 March 2019. This resulted in a charge of £774k in respect of initial recognition (2018: nil) to the Income Statement, shown below the surplus for the year.

At 31 March 2019 Colne had net assets of £47.8m (2018: £45.4m). Total debt increased by £17.8m during the year to £129.5m (2018: £111.6m). Borrowings are utilised to fund the development of new homes. A total of £24.6m (2018: £11.8m) was invested in the construction of new homes during the year.

At 31 March 2019 Colne had undrawn and fully secured loan facilities of £33.8m (2018: £2m plus £65m unsecured).

The main highlights from Colne’s Financial Statements are shown below:

For the year ended 31 March 2019 £000 2018 £000 2017 £000 Income Statement Turnover 20,258 20,229 20,932 Income from lettings 18,648 18,199 17,321 Operating surplus 7,493 7,150 7,209 Total comprehensive income for the year 2,327 2,108 2,144

Statement of Financial Position Tangible fixed assets 233,852 212,202 202,977 Net current liabilities (586) (28,512) (2,976) Creditors due after more than one year 181,389 135,281 156,567 Pensions liability 2,142 1,082 1,252 Reserves:

- Revenue 48,712 46,367 44,434 - Cash flow hedge (961) (943) (1,118)

Housing properties owned at year end 2019 2018 2017 Social housing 3,096 2,982 2,907 Leasehold 38 38 38 TOTAL 3,130 3,020 2,945

Statistics 2019 2018 2017 Operating margin 37% 35% 34% Social housing lettings operating margin 37% 35% 34% Rent losses (voids and bad debts) as % of rent and services charges receivable 1.2% 1.1% 1.1%

198% 132% 146% . Interest cover . (operating surplus divided by net interest)

Payment of creditors Colne agrees the terms of payment with suppliers in advance and pays in accordance with its contractual and legal obligations.

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Going concern Our business activities, current financial position and factors likely to affect our future development are set out within the Operating and Financial Review.

After making enquiries our Board has a reasonable expectation that Colne has adequate resources to continue in operational existence for the foreseeable future, being a period of eighteen months after the date on which the report and Financial Statements are signed. For this reason, it continues to adopt the going concern basis in the Financial Statements.

Operating Performance

Performance The Board monitors a range of performance measures to ensure that Colne is delivering services effectively and efficiently. For each of these the Board has established targets and achievement of these is presented to each Board meeting.

Performance highlights in the last year were:

Rent collected as a percentage of rent due rose to 105.4% (2018: 98.3%) against a target of 99.8%. By collecting greater than 100 per cent Colne is reducing its rent arrears.

Arrears were at 2.49% (2018: 2.17%) against a target of 3% and a benchmark of 2.88%.

To achieve this performance, Colne has worked with customers to secure over £40,000 of Discretionary Housing Payments and a co-ordinated phone campaign resulted in a number of customers making lump sum payments to clear arrears. In addition, the welfare work undertaken by Colne created an additional income of £544,033 for customers through a combination of backdated awards, one off payments and equivalent ongoing annual benefit income.

At the end of the year, every property that needed a valid gas certificate had one and every property had a valid fire risk assessment

This performance reflects Colne’s commitment to compliance and reflects changes in operating arrangements to introduce compliance officers across Colne’s operating area.

The average number of days to let an empty general needs property in the year was 36.6 days (2018: 43.2 days) against a target of 20 days and a benchmark of 20.3 days. The end of year performance was, however, an improvement of more than six days on the 2017/18 performance.

Weaker performance in September and October following a fundamental re-structure heavily affected the performance which returned to 23.1 days by quarter 4.

It took 45.9 days (2018: 45.6 days) to let each Housing for Older People property against a target of 20 days and a benchmark of 203 days.

Colne has introduced closer working between housing and asset teams as part of Colne’s work on Building Our Future. Colne has also worked closely with local authorities to speed up nominations. Housing for Older People lettings remain a challenge as the necessary support arrangements are put in place. Tackling this forms an objective for Colne in the next year.

12 shared ownership homes were sold in the year (2018: 21 homes). One property was unsold for more than six months at 31 March 2019 compared with four at 31 March 2018.

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COLNE HOUSING SOCIETY LIMITED STRATEGIC REPORT INCORPORATING THE OPERATING AND FINANCIAL REVIEW (continued) Shared ownership property sales continue to deliver surpluses and form an integral part of Colne’s development strategy. Customer satisfaction was 88.9% (2018: 87%) against a target of 85% and a benchmark of 78.2%. Staff sickness reduced from 14.77 days to 7.99 days against a target of 7.65 days. In the year Colne distributed £20,000 of Colne Community Builders grants to support 1,000 people to live independently. Colne uses Gift Aid from Iceni to fund community programmes voted on by staff. The distribution of funds is administered by a community foundation made up of members from across the communities in which Colne operates, including tenants and others. VALUE FOR MONEY In April 2018 the Regulator of Social Housing introduced a new value for money standard which requires Registered Providers to set out their strategic objectives to deliver a range of housing and to explore alternative models and approaches to achieve these. The development of Unlocking Eastern Potential (see page 4) and the focus on securing the right partner for Colne has been the prime focus for value for money over the last year and presents opportunities to deliver improved value for money for the organisation and its customers. The Value for Money Standard also requires Registered Providers to report on a number of performance metrics and compare performance against other organisations. Colne’s performance against each value for money indicator is set out in the table below. Measure 2018 Sector

Median Colne

2017/18 Colne

2018/19 Investment in properties (existing and new supply) 6.0% 6.7% 10.8%

Social housing units delivered/units owned 1.2% 2.9% 3.8%

Gearing (net debt/NBV of housing property) 42.9% 53.8% 54.1%

EBITDA MRI interest cover 206% 210% 303%

Headline social housing cost per unit £3,400 £3,959 £3,798

Operating margin (social housing lettings) 32.1% 35.1% 36.9%

Operating margin (overall) 28.9% 35.3% 37.0%

Return on capital employed 4.1% 3.9% 3.2%

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COLNE HOUSING SOCIETY LIMITEDSTRATEGIC REPORT INCORPORATING THE OPERATING AND FINANCIAL REVIEW (continued)

Colne has selected a peer group of local similarly-sized social landlords which includes Broadland Housing Group, Chelmer Housing Partnership, Estuary Housing Association, Havebury Housing Partnership, and Saffron Housing Trust. The charts that follow compare Colne’s 2019 and 2018 VFM metrics with this group and the median from the Regulator of Social Housing 2018 Global Accounts.

Investment in new and existing housing

Colne utilises the efficiencies of its Iceni development joint venture model to deliver new social housing at a rate that exceeds the sector median and the majority of its peers.

The ability to share development overheads with the other shareholders of Iceni ensures that Colne can continue to develop at volume while maintaining value for money from this activity.

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Financial performance

EBITDAMRI (Earnings Before Interest, Tax, Depreciation & Amortisation, with Major Repairs Included) interest cover for the year to March 2019 is 300% (2018: 209%) which illustrates Colne’s strong operating margins and low financing costs. The work to restructure a portion of Colne’s debt portfolio during the year has contributed to the improvement on this metric.

Gearing is above the sector median, but in line with our peer group. This reflects Colne’s desire to utilise the value of its existing housing assets to enable the delivery of new homes.

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Colne’s operating margin for the year of 37.5% (2018: 35.5%) reflects the commitment to sound financial management across the business. The board has set a budget that asks for further improvement to 40% in the year to March 2020.

Social housing lettings

Colne recognises that its headline social housing costs per unit are among the highest in its peer group, and lower quartile for the sector. The work undertaken to date on the Building Our Futuresstrategy has refocussed front line staff to work more effectively and is expected to enable this metric to improve in the coming year.

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The operating margin for social housing lettings of 36.9% (2018: 35.1%) is improving and among the strongest in the peer group, and well above the sector median of 32.1%. During 2018/19 Colne exited some agreements to provide housing management services to third parties, so that focus is on our own customers.

Colne’s return on capital employed metric (operating surplus over total assets less current liabilities) is average among the peer group but lower than the sector median.

Value for money targets for 2019/20The Board has targeted a number of areas for further work on value for money during the coming year. These include:

• Continuing to explore Unlocking Eastern Potential with Greenfields• Reviewing Colne’s treasury portfolio and exploiting opportunities• Considering rent setting beyond April 2020 under the new rent guarantee• Assisting Iceni to grow its customer base and secure further economies of scale• Further improving the asset management strategy• Identifying opportunities to secure grant funding for new homes for social rent.

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Colne has shaped a clear strategic objective “Business Ready” which will focus on its approach to driving value across the organisation and aim to “do the basics brilliantly”.

This objective will prepare Colne for either remaining independent or working with a preferred partner to co-create, shape and develop a new operating model. This will provide a range of value for money advantages which include:

• Increasing development capacity over the next five years• Reducing unit costs through improved operating arrangements• Clearer and easier governance arrangements• Greater financial capacity through improved use of the combined stock of the two

organisations.Over the first three quarters of 2019/20, Colne will use its Business Ready plan to undertake due diligence across its business. The current aim is to complete this by December 2019 at which point a revised operating model and targets will be in place.

Throughout the process for exploring the potential of unlocking the East, Colne has remained in contact with the Regulator, funders and stakeholders. This will continue to ensure there is transparency and clarity as to Colne’s aspirations for its future.

GOVERNANCE The Board comprises up to twelve members and is responsible for Colne’s strategy and policy framework and managing its affairs.

At the 31 March 2019, the Board comprised seven independent non-executive directors and one executive director as well as one co-optee.

Non-Executive Directors (“NED’s”) are drawn from a wide background bringing together professional, commercial and local experience. Our Board has delegated the day-to-day management and implementation of the approved business plan to the Chief Executive and the Executive Directors.

The composition of the Board and Committees at 31 March 2019 is set out on pages 16 and 17.

Colne has adopted a Code of Conduct that applies to all employees and non-executive directors equally. The Code is supported by a range of policies that detail the way Colne delivers its services.

Colne has adopted the NHF Code of Governance 2015.

The Board has reviewed Colne’s compliance and has confirmed it is compliant with all relevant areas of the Code.

Board members and executive officers Each Non-Executive Director is responsible as a Trustee and has a fiduciary responsibility to Colne. The executive officers have no legal status as directors although they act as executives within delegations approved by the Board.

Delegations The Board has delegated specific areas of operation to standing committees. The terms of delegation are clearly defined and regularly reviewed by each Committee and the Board to ensure that they continue to be appropriate in the light of operational experience.

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Audit Committee The purpose of the Audit Committee is to monitor and control the internal and external audit functions and to provide our Board with the independent and objective view of financial and operational performance. The committee looks at the business risks against the corporate risk universe and undertakes deep dives to assure itself that risks are adequately managed and mitigated. The Board reviews its key risks quarterly.

Governance and Remuneration Committee The Governance and Remuneration Committee considers the appointment, remuneration and appraisal of Non-Executive Directors, the Chief Executive and Executive Directors and provides oversight of governance and compliance matters.

Treasury Committee The Treasury Committee considers Colne’s annual Treasury Strategy and reviews treasury performance quarterly. It is also responsible for reviewing and recommending prospective lenders and funding agreements.

As at 31 March 2019, Colne had one working group of the Board providing oversight of Colne’s work on Unlocking Eastern Potential.

Day-to-day management is delegated to an experienced management team to ensure: • Adherence to relevant legislation• The interests of tax-payers and the reputation of the sector are protected• Colne operates in accordance with its Rules, Standing Orders, Financial Regulations and

other governance documentation.

Fraud and bribery Colne complies with the regulatory requirements on fraud and has an active anti-bribery policy that is reviewed annually. The Board has a current strategy and policy on fraud covering prevention, detection and reporting of fraud and the recovery of assets.

The policy requires a register of all actual and attempted fraud to be maintained. The register is reviewed quarterly by the Board and any such cases are reported to the Board. Colne is required to make an annual report to the RSH on any fraudulent activity.

There have been no material cases of fraud or bribery reported during the year.

Statement of compliance Colne operates in accordance with the requirements of FRS102 and paragraph 4.7 of the Housing Statement of Recommended Practise 2014.

The strategic report was approved on 24th July 2019 and signed on its behalf by:

Hattie Llewelyn-Davies Chair of the Board

Members Year joined Committee posts held Number of Board meetings attended (4 in total)

Colne Housing Society Limited Board Members

H Llewelyn-Davies Chair, Independent 2017 Governance and

Remuneration 4

Malcolm O’BrienVice Chair, Independent

2016 Governance and Remuneration 4

Alan CollardIndependent 2014

Audit (Chair)

Treasury Committee4

Alison InmanIndependent

2014 Audit 4

Phil PurkissIndependent 2016 Audit 4

Julia ThomasIndependent 2016 Governance and

Remuneration 3

Kate ThurmanIndependent 2016 Audit

Treasury Committee 4

C EllisonCo-optee 2018 2

Sara ThakkarChief Executive 2015 3

Executive Team

Sara Thakkar 2015 Chief Executive(and Company Secretary to May 2019)

David Hart 2019Finance Director (and Company Secretary from May 2019)

Helen Gregory 2016 Operations Director (resigned December 2018)

Paul Wallwork 2018 Interim Finance Director (May to September 2018)

Josie Parsons 2016 Resources Director (resigned May 2018)

Board Members, Executive Directors, advisers and bankers

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Advisers and Bankers Address

Registered Auditor RSM UK Audit LLP

Abbotsgate House, Hollow Road Bury St Edmunds, Suffolk IP32 7FA

Internal Auditors Mazars LLP

Tower Bridge House, St Katherine’s Way London EW1D 1DD

Bankers Barclays Bank PLC

Level 28, Churchill Place Canary Wharf, London E14 5HP

Committee Memberships Committee posts held

Audit Committee Number of meetings attended (4 in total)

Alan Collard Chair 4

Alison Inman 4

Phil Purkiss 4Kate Thurman 4

Treasury Committee Number of meetings attended (2 in total)

Alan Collard Chair 2Kate Thurman 2Governance & Remuneration Committee

Number of meetings attended (2 in total)

Malcolm O’Brien Chair 2Hattie Llewelyn-Davies 2Julia Thomas 2

Registered Office Legal Status

Block G, Parkside, Knowledge Gateway Nesfield Road, Colchester, Essex CO4 3ZL

Registered under the Co-operative and Community Benefits Societies Act 2014, No.20799R. Registered under Section 5 of the Housing Associations Act 1996 No. LH1651

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COLNE HOUSING SOCIETY LIMITED

Opinion We have audited the financial statements of Colne Housing Society Limited (the ‘Association’) for the year ended 31 March 2019 which comprise the statement of comprehensive income, the statement of financial position, The statement of changes in reserves, the statement of changes in cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

• give a true and fair view of the state of the Association’s affairs as at 31 March 2019 and of its income and expenditure for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice;

• have been prepared in accordance with the requirements of the Co-operative and Community Benefit Societies Act 2014, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Association in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the Board’s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the Board has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Association’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The Board is responsible for the other information. Our opinion on the financial statements does not cover the other information and, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work wehave performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF COLNE HOUSING SOCIETY LIMITED (continued)

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 of the Association;

or• we have not received all the information and explanations we require for our audit.

Responsibilities of the Board As explained more fully in the Board’s responsibilities statement set out on page 14, the Board is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board is responsible for assessing the Association’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board either intends to liquidate the Association or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

The engagement partner on the audit resulting in this independent auditor’s report is Peter Howard.

Use of our report This report is made solely to the Association’s members as a body, in accordance with Part 7 of the Co-operative and Community Benefit Societies Act 2014. 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.

RSM UK Audit LLP Statutory Auditor Chartered Accountants

Date

Abbotsgate House, Hollow Road Bury St Edmunds, Suffolk IP32 7FA

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COLNE HOUSING SOCIETY LIMITED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2019

Note 2019 £000

2018 £000

Turnover 3 20,258 20,229 Operating costs 3 (11,909) (11,977) Cost of sales 3 (856) (1,102)

Operating surplus 7,493 7,150 Gain on disposal of housing properties 4 108 32 Interest receivable 5 5 5 Interest and financing costs 6 (3,786) (5,409) Movement in fair value of financial instruments (93) 155

Surplus for the year 3,727 1,933

Other comprehensive income Initial recognition of multi-employer defined benefit pension scheme 23 (774) -Actuarial (loss)/gain in respect of pension schemes 23 (608) -Change in fair value of hedged financial instruments (18) 175

Total comprehensive income for the year 2,327 2,108

All amounts relate to continuing activities.

The notes on pages 24 to 49 form part of the financial statements.

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21

COLNE HOUSING SOCIETY LIMITED STATEMENT OF FINANCIAL POSITION as at 31 March 2019 Note 2019

£000 2018 £000

Fixed assets Housing properties 11 233,328 211,744 Other tangible fixed assets 13 524 458

233,852 212,202

Long term assets 14 1,441 1,410 Current assets Housing stock for sale 15 899 77 Debtors 16 957 925 Cash and cash equivalents 3,310 2,242

5,166 3,244

Creditors – amounts falling due within one year 17 (5,752) (31,756)

Net current liabilities (586) (28,512)

Total assets less current liabilities 234,707 185,100

Creditors – amounts falling due after one year 18 (181,389) (135,281)

Derivative financial instruments 26 (3,247) (3,135)

Provision for liabilities Pension provision 23 (2,142) (1,082) Other provisions 23 (178) (178)

Total net assets 47,751 45,424 Capital and reserves Called up share capital 24 - - Revenue reserve 48,712 46,367 Cash flow hedge reserve (961) (943)

Total reserves 47,751 45,424 The financial statements were approved by the Board on 24 July 2019 and signed on its behalf by:

H Llewelyn-Davies, Chair

A Collard, Audit Chair

D Hart, Company Secretary

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22

COLNE HOUSING SOCIETY LIMITED STATEMENT OF CHANGES IN RESERVES For the year ended 31 March 2019 Revenue

Reserve

£000

Cash Flow

Hedge Reserve

£000

Total

£000

Balance at 1 April 2017 44,434 (1,118) 43,316 Surplus for the year 1,933 - 1,933 Change in fair value of hedged instruments - 175 175

Balance at 31 March 2018 46,367 (943) 45,424 Surplus for the year 3,727 - 3,727 Initial recognition of multi-employer defined benefit pension scheme (774) - (774) Actuarial loss in respect of pension schemes (608) - (608) Change in fair value of hedged instruments - (18) (18)

Balance at 31 March 2019 48,712 (961) 47,751 The Revenue Reserve represents accumulated surpluses that have been retained by Colne since incorporation. The Cash Flow Hedge Reserve represents the cumulative effect of movements on the hedged financial insutrments held at the accounting date.

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23

COLNE HOUSING SOCIETY LIMITED STATEMENT OF CASH FLOWS for the year ended 31 March 2019 Note 2019

£000 2018 £000

Net cash generated from operating activities 10 8,775 10,165

Cash flow from investing activities Purchase of tangible fixed assets (24,998) (12,409) Proceeds from sale of tangible fixed assets 195 82 Grants received - 510 Interest received 5 -

(24,798) (11,817)

Cash flow from financing activities Interest paid (3,983) (6,080) New secured loans 49,222 10,700 Repayments of borrowings (27,941) (2,095) Loan issue costs (207) (14)

17,091 2,511

Net change in cash and cash equivalents 1,068 859

Cash and cash equivalents at beginning of the year 2,242 1,383

Cash and cash equivalents at end of the year 3,310 2,242

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES Legal status Colne is registered under the Co-operative and Community Benefit Societies Act 2014 and is a Registered Provider, registered with the Regulator of Social Housing in England and Wales under the Housing Act. The address of the registered office and principal place of business is Block G, Parkside, Knowledge Gateway, Nesfield Road, Colchester, Essex CO4 3ZL. Colne’s principal activities are reported on page 3 of the Financial Statements. The nature of operations are also included within the Financial Statements as part of the Strategic Report. General information and basis of accounting The financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including ‘Financial Reporting Standard 102 – “The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS 102), the Accounting Direction for Private Registered Providers of Social Housing from 2015 and the Statement of Recommended Practice for registered social housing providers 2014 (SORP), published by the National Housing Federation. Colne is a public benefit entity, as defined in FRS102 and applies the relevant paragraphs prefixed ‘PBE’ in FRS102. The financial statements are presented in pounds Sterling (£000) except where specifically stated otherwise. Going concern Colne’s business activities, its current financial position and factors likely to affect its future development are set out within these Financial Statements. Colne has in place appropriately timed borrowing facilities which provide adequate resources to finance committed reinvestment and development programmes, along with the business’s day to day operations. Colne also has a long-term business plan which shows that it is able to service its net current liabilities whilst continuing to comply with lenders’ covenants. On this basis, the Board has a reasonable expectation that Colne has adequate resources to continue in operational existence for the foreseeable future, being a period of at least twelve months after the date on which the Financial Statements are signed. For this reason, it continues to adopt the going concern basis in the Financial Statements. Turnover Turnover comprises rental and service charge income receivable in the period, income from shared ownership first tranche sales, other services included at the invoiced value (excluding VAT) of goods and services supplied in the period and Supporting People grants and amortised Government grants. Rental income is recognised from the point when it becomes due. Income from first tranche sales are recognised at the point of legal completion of the sale. Charges for support services funded under Supporting People are recognised as they fall due under the contractual arrangements with Administering Authorities. Turnover also includes gift aid received from Iceni and other income received as management fees such as from the provision of services to other entities.

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25

COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES (continued) Shared ownership property sales The surplus or deficit arising on the disposal of housing properties held as fixed assets is accounted for on the face of the Statement of Comprehensive Income. In accordance with the SORP, proceeds of sale relating to first tranche sales are accounted for as turnover in the Statement of Comprehensive Income, with the apportioned cost being shown within the operating results as the cost of sale. Interest payable Borrowing costs are interest and other costs incurred in connection with the borrowing of funds. Borrowing costs are calculated using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of a financial instrument and is determined on the basis of the carrying amount of the financial liability at initial recognition. Under the effective interest method, the amortised cost of a financial liability is the present value of future cash payments discounted at the effective interest rate and the interest expense in a period equals the carrying amount of the financial liability at the beginning of a period multiplied by the effective interest rate for the period. Fixed assets Fixed assets are stated using the cost model at cost less cumulative depreciation less impairment. Fixed assets includes housing properties held for social benefit purposes, scheme equipment and other tangible fixed assets such as office equipment & IT equipment. Housing properties are principally properties available for rent and shared ownership properties. Housing properties are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes the cost of acquiring land and buildings, directly attributable development costs and borrowing costs directly attributable to the construction of new housing properties during their development. Capitalisation of interest ceases when substantially all the activities that are necessary to get the asset ready for use are complete. Depreciation Freehold land and housing properties under construction are not depreciated. Depreciation is charged, on a straight-line basis, to write down the cost of housing properties to their estimated residual values. The building structure, roofing and drainage systems of housing properties are depreciated over their expected useful economic lives:

Housing property freehold structure – new build 100yrs Housing property freehold structure – rehabilitated 50yrs Housing property leasehold buildings Length of lease

Major components Using component costing principles housing properties are divided into components which are depreciated over their expected useful economic lives: Roofs 50-100yrs Kitchens 20yrs Windows 30yrs Bathrooms 25yrs Boilers/Heating systems 15yrs

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES (continued) Housing properties held on long leases are depreciated over their estimated useful economic lives or the lease duration, if shorter. Improvements Where there are improvements to housing properties that are expected to provide incremental future benefits, these are capitalised and added to the carrying amount of the property. Any works to housing properties which do not replace a component or result in an incremental future benefit are charged as expenditure in the Statement of Comprehensive Income. Properties let on long leasehold Where the rights and obligations for improving a housing property reside with the leaseholder or tenant, any works to improve such properties incurred by Colne are recharged to the leaseholder or tenant and recognised in surplus or deficit in the Statement of Comprehensive Income along with the corresponding income from the leaseholder or tenant. Other fixed assets Other fixed assets are stated at historic cost less accumulated depreciation and any provision for impairment. Depreciation is provided on all non-housing property, plant and equipment, other than freehold land, at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows:

Leasehold offices Length of lease Office furniture and fittings 7ys Scheme fittings 4yrs Computers and office equipment 3yrs

Impairment of social housing properties The Board has to make an assessment as to whether an indicator of impairment exists. In making the judgement, management considered the detailed criteria set out in the SORP. The Board assesses impairment at scheme level and it is only assessed when an impairment trigger is deemed to have occurred. Impairment occurs when there is reduction in the service potential of the scheme and it is recognised immediately in the Statement of Comprehensive Income. Impairment is assessed by comparing the carrying amount against the recoverable amount. The recoverable amount is the higher of value in use (VIU) or fair value less costs to sell as represented by EUV-SH for properties held for social benefit purposes or value in use service potential (VIU-SP). Government grants Government grants include grants receivable from Homes England, local authorities and other government bodies. Government grants received for housing properties are recognised in income over the useful economic life of the structure of the asset and, where applicable, the individual components of the structure (excluding land) under the accruals basis. Government grants relating to revenue are recognised as income over the periods when the related costs are incurred once reasonable assurance has been gained that Colne will comply with the conditions and the funds will be received. Other grants Grants received from non-government sources are recognised using the performance model. Grants are recognised as income when the associated performance conditions are met.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES (continued) Donated land and other assets Land or other assets which have been donated by a government source are added to cost of assets at fair value of the land at the time of donation. The difference between the fair value of the asset donated and the consideration paid is treated as a non-monetary government grant and included within the Statement of Financial Position as a liability. The terms of the donation are considered to be performance related conditions. Where the donation is not from a public source, the fair value of the donation less the consideration is included in income. Recycling of grant Where there is a requirement to either repay or recycle a grant received for an asset that has been disposed of, a provision is included in the Statement of Financial Position to recognise this obligation as a liability. When approval is received from the funding body to use the grant for a specific development, the amount previously recognised as a provision for the recycling of the grant is reclassified as a creditor in the Statement of Financial Position. For shared ownership staircasing sales, when full staircasing has not taken place, the recycling of the grant may be deferred if the net sales proceeds are insufficient to meet the grant obligation relating to the disposal. In this case it is not recognised as a provision. On subsequent staircasing sales, the requirement to recycle the grant becomes an obligation if sufficient sales proceeds are generated to meet the obligation and a provision is recognised at this point. On disposal of an asset for which government grant was received, if there is no obligation to repay the grant, any unamortised grant remaining within liabilities in the Statement of Financial Position related to this asset is derecognised as a liability and recognised as revenue in surplus or deficit in the Statement of Comprehensive Income. Investments in subsidiaries and joint ventures Colne owns 100% of the shares in Riverview Homes Limited (Riverview), a wholly owned subsidiary and a company registered in England and Wales. Riverview has been dormant throughout the accounting period and therefore does not need to be consolidated under the equity method within these Financial Statements. Colne also owns 33% of the shares of a development company Iceni Homes Limited (Iceni). Iceni is a company registered in England and Wales with its principal activity being the provision of property development services. Iceni pays donations to its partner associations and donations are accounted for on an accruals basis in accordance with the joint venture agreement. The remaining 67% is owned equally by two other RP’s. Pensions Multi-employer defined benefit pension scheme – Social Housing Pension Scheme (SHPS) Colne participates in an industry wide multi-employer defined benefit pension scheme and makes payments on behalf of its employees. The scheme is funded by contributions partly from the employees and partly from Colne, at rates determined by independent actuaries. The assets of the defined benefit scheme are invested separately from the assets of Colne in independently administered multi-employer funds. Colne’s net obligation in respect of defined benefits is calculated separately by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods, discounting that amount and deducting the fair value of any scheme assets. The calculation is performed annually by an independent qualified actuary.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES (continued) Remeasurements of the net defined benefit liability or asset, which comprise actuarial gains and losses and the return on scheme assets (excluding interest) are recognised immediately in other comprehensive income. Supported housing and other managing agents Where Colne has ownership of a supported housing or other scheme but has an agreement with a third party to manage those schemes and the terms of that agreement substantially transfers the risks and benefits attached to the scheme, then all scheme revenue and expenditure is excluded from these Financial Statements. Service charge sinking funds and service costs Unutilised contributions to service charge sinking funds and over-recovery of service costs which are repayable to tenants or leaseholders or are intended to be reflected in reductions to future service charge contributions are recognised as a liability in the Statement of Financial Position. The amount included in liabilities in respect of service charge sinking funds includes interest credited to the fund. Where there has been an under-recovery of leaseholders’ or tenants’ variable service charges and recovery of the outstanding balance is virtually certain, the balance is recognised in the Statement of Financial Position as a trade receivable. Debit and credit balances on individual schemes are not aggregated as there is no right of set-off. Cash and cash equivalents Cash and cash equivalents comprise cash balances and on demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. Leased assets At inception, Colne assesses agreements that transfer the right to use assets. The assessment considers whether the arrangement is, or contains, a lease based on the substance of the arrangement. Operating leases Leases that do not transfer all the risks and rewards of ownership are classified as operating leases. Payments under operating leases are charged to surplus or deficit in the Statement of Comprehensive Income on a straight-line basis over the period of the lease. Financial instruments Basic financial instruments Financial assets and financial liabilities are recognised when Colne becomes a party to the contractual provisions of the instrument. Financial assets carried at amortised cost Financial assets carried at amortised cost comprise rent arrears, trade and other receivables excluding prepayments and cash and cash equivalents. Financial assets are initially recognised at fair value plus directly attributable transaction costs. After initial recognition, they are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. If there is objective evidence that there is an impairment loss, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced accordingly.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES (continued) A financial asset is derecognised when the contractual rights to the cash flows expire, or when the financial asset and all substantial risks and rewards are transferred. If an arrangement constitutes a financing transaction, the financial asset is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. As a condition of certain funding arrangements Colne is required to set aside a debt reserve treated as long-term investments. These reserves are invested in the name of Colne and cannot be redeemed until maturity of the underlying financial instrument. Financial liabilities carried at amortised cost These financial liabilities include trade and other payables excluding deferred income and interest bearing loans and borrowings. Non-current debt instruments which meet the necessary conditions in FRS102 are initially recognised at fair value adjusted for any directly attributable transaction cost and subsequently measured at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance costs in the Statement of Comprehensive Income. Discounting is omitted where the effect of discounting is immaterial. A financial liability is derecognised only when the contractual obligation is extinguished, that is, when the obligation is discharged, cancelled or expires. Derivative financial instruments Colne uses derivative financial instruments to reduce exposure to interest rate movements. Colne does not hold or issue derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to fair value, at each reporting date. Fair value gains and losses are recognised in surplus or deficit unless hedge accounting is applied and the hedge is a cash flow hedge. To qualify for hedge accounting, Colne documents the hedged item, the hedging instrument and the hedging relationship between them, and the causes of hedge ineffectiveness (such as different maturities, nominal amounts or variable rates, and counterparty credit risk). Colne elects to adopt hedge accounting for interest rate swaps where:

• the interest rate swap is a qualifying hedging instrument with an external party that hedges interest rate risk on a loan, part of the nominal amount of a loan, or a group of loans managed together that share the same risk and that qualify as a hedged item;

• the hedging relationship between the interest rate swap and the interest rate risk on the loan is consistent with the risk management objectives for undertaking hedges (i.e. to manage the risk that fixed interest rates become unfavourable in comparison to current market rates or the variability in cash flows arising from variable interest rates); and

• the change in the fair value of the interest rate swap is expected to move inversely to the change in the fair value of the interest rate risk on the loan.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. PRINCIPAL ACCOUNTING POLICIES (continued) Cash flow hedge - hedge of variable interest rate risk Where an interest rate swap that converts variable rate debt into fixed rate debt qualifies for hedge accounting, it is accounted for as a cash flow hedge. The cumulative change in the fair value of the interest rate swap is recognised in other comprehensive income up to the amount of the cumulative fair value movement on the variable rate debt that is attributable to the variable interest rate risk. Any excess fair value gains or losses on the interest rate swap not recognised in the statement of comprehensive income is recognised as a surplus or deficit. The gain and loss recognised in other comprehensive income are recorded as a separate component of equity (the cash flow hedge reserve). Net cash settlements on the interest rate swap are recognised as a surplus or deficit in the period(s) when the net cash settlements accrue. The cash flow hedge reserve is reclassified a surplus or deficit when the variable rate interest is recognised in Statement of Comprehensive Income. Hedge accounting is discontinued when a floating to fixed interest rate swap expires, is sold, terminated or exercised, or when the conditions for hedge accounting are no longer met or Colne documents its election to discontinue hedge accounting. Any fair value gains or losses accumulated in the cash flow hedge reserve are reclassified to Statement of Comprehensive Income either when the variable interest rate expense is recognised as a surplus or deficit, or immediately on discontinuation of hedge accounting if future variable interest rate cash flows are no longer expected to occur. Taxation Colne has charitable status for tax purposes and is therefore exempt from paying corporation tax on its charitable activities. VAT A large proportion of Colne’s income comprises rental income which is exempt from VAT, and VAT incurred in relation to this income cannot be recovered. A partial exemption claim arises as Colne charges VAT on some of its income and is able to recover some of the VAT incurred on costs relating to this taxable income. Expenditure is therefore shown inclusive of VAT. Recoverable VAT arising from the partially exempt activities is credited to the Statement of Comprehensive Income. The balance of VAT recoverable or payable is included as a current asset or liability in the Statement of Financial Position. 2. SIGNIFICANT MANAGEMENT JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY In the application of Colne’s accounting policies, described in note 1, management are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are considered to be relevant. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised and in any future periods affected.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 2. SIGNIFICANT MANAGEMENT JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY (continued) Significant management judgements Estimation uncertainty Colne makes estimates and assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:

• their nature: and • their carrying value as at the end of the reporting period.

The following are management judgements in applying the accounting policies of Colne that have the most significant effect on the amounts recognised in these Financial Statements. Fair value measurement Financial instruments that do not meet the definition of basic under FRS102 have to be measured at fair value, using various valuation techniques. In applying these valuation techniques, management have to apply a significant amount of judgement. Estimated fair values may vary from that which might be achievable at the market date. Provisions Provisions comprise defined benefit pension schemes and other provisions. Defined benefit pension scheme Colne has obligations to pay pension benefits to certain employees. The cost of these benefits and the present value of the obligation depend on a number of factors, including; life expectancy, salary increases, asset valuations and the discount rate on corporate bonds. Management in conjunction with the actuary estimates these factors in determining the net pension obligation in the balance sheet. The assumptions reflect historical experience and current trends. Other Provisions These include estimates for dilapidations, major works and repair costs, depreciation, and bad debts. These provisions require management’s best estimate of the costs that will be incurred based on legislative and contractual requirements. In addition, the timing of the cash flows and the discount rates used to establish net present value of the obligations require management’s judgement.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 3. PARTICULARS OF TURNOVER, OPERATING COSTS, COST OF SALES AND

OPERATING SURPLUS 2019 Turnover

£000

Cost of sales £000

Operating costs £000

Operating surplus

£000

Social housing lettings 18,648 - 11,759 6,889

Other social housing activities First tranche property sales 1,166 856 - 310 Gift Aid payment from Iceni Homes 371 - - 371 Other income 73 - 150 (77)

1,610 856 150 604

Total 20,258 856 11,909 7,493 2018 Turnover

£000

Cost of sales £000

Operating costs £000

Operating surplus

£000

Social housing lettings 18,199 - 11,805 6,394

Other social housing activities First tranche property sales 1,642 1,102 - 540 Gift Aid payment from Iceni Homes 140 - - 140 Other income 248 - 172 76

2,030 1,102 172 756

Total 20,229 1,102 11,977 7,150

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 3. PARTICULARS OF TURNOVER, OPERATING COSTS, COST OF SALES AND OPERATING SURPLUS (continued) 2019 2018 Income and expenditure from Social Housing Lettings

General needs

£000

Housing for older

people £000

Temporary housing

£000

Supported housing

£000

Shared ownership

£000

Total

£000

Total

£000 Income Rents receivable 13,826 1,006 700 577 441 16,550 16,244 Service charge income 510 436 - 87 212 1,245 1,048 Net rental income 14,336 1,442 700 664 653 17,795 17,292 Supporting People - 45 - - - 45 104 Other income (1) - 13 - - 12 10 Amortised government grant 644 53 - 90 9 796 793 Turnover from social housing lettings 14,979 1,540 713 754 662 18,648 18,199 Expenditure Management costs 3,036 331 658 134 158 4,317 3,466 Service charge costs 486 170 - 62 60 778 936 Routine maintenance 1,718 272 121 78 103 2,292 2,333 Planned maintenance 292 96 - 22 1 411 245 Major repairs expenditure 394 65 11 44 1 515 830 Bad debts 80 15 1 2 - 98 48 Depreciation of housing properties 2,644 136 1 201 83 3,065 3,275 Depreciation of other fixed assets 233 21 10 10 9 283 71 Other operating costs on social housing properties - - - - - - 601 8,883 1,106 802 553 415 11,759 11,805 Operating surplus/(loss) on social housing lettings 6,096 434 (89) 201 247 6,889 6,394 Void losses 67 26 7 12 - 112 142

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 4. SURPLUS ON DISPOSAL OF ASSETS 2019

£000 2018 £000

Proceeds 195 82 Grant repaid - - Cost of sale (87) (50)

108 32 5. INTEREST RECEIVABLE 2019

£000 2018 £000

Bank interest 5 5 6. INTEREST AND FINANCE COSTS 2019

£000 2018 £000

Bank loans, overdrafts and other loans 3,868 4,357 Fixed rate swap break costs - 1,537 Net interest on defined benefit liability 46 16 Loan expenses amortised 156 236 Bond premium amortised (65) (187) 4,005 5,959 Less: interest capitalised (219) (550)

3,786 5,409 For assets under construction, borrowing costs have been capitalised based on a capitalisation rate of 3.5% (2018: 6%) which is the estimated interest rate used for development. During the prior year Colne broke a fixed rate swap incurring costs of £1.537m to enable repayment of the underlying loan at its option.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 7. SURPLUS ON ORDINARY ACTIVITIES Surplus for the year is stated after charging: 2019

£000 2018 £000

Depreciation of housing properties 3,065 3,275 Depreciation of other fixed assets 283 71 Government grants - 10 Gain on disposal of fixed assets 108 32 Auditor’s remuneration Audit of financial statements 27 24 Audit related advisory services 3 5 Taxation advisory services 17 6 Operating lease payments 558 575

8. EMPLOYEES The average number of employees (including Executive Directors) expressed as full time equivalents (calculated based on a monthly average) during the year was: 2019 2018

Housing 33 28 Management 15 15

48 43 Staff costs (including Executive Directors) consist of:

2019 £000

2018 £000

Wages and salaries 1,498 1,366 Social security costs 147 136 Other pension costs 117 77 1,762 1,579 Two (2018: four) employees, including Executive Directors, earned over £60,000 in remuneration in the following bands: 2019 2018

£60,000 - £69,999 1 1 £70,000 - £79,999 - 2 £130,000 - £139,999 1 1 2 4

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 9. BOARD MEMBERS AND EXECUTIVE DIRECTORS The key management personnel are defined as Executive Directors, listed on page 16. The total emoluments, including pension contributions, received by Executive Directors were £272,857 (2018: £302,922) in the year. The emoluments of the Chief Executive, who was also the highest paid director, in the year were as follows: 2019

£000 2018 £000

Emoluments, excluding pension contributions 122 107 Pension contributions 11 10

133 117 The Chief Executive is an ordinary member of the SHPS defined contribution scheme.

Non-executive Board members received £35,084 (2018: £31,212) for their services to Colne. They were paid on a pro-rata basis as follows: Remuneration per annum

2019

£ 2018

£

Chair 7,000 7,000 Vice chair 5,000 5,000 Committee chair 4,500 4,500 Board member 3,000 3,000 Details of Board and Committee members can be found on page 16.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 10. STATEMENT OF CASH FLOWS Reconciliation of surplus for the year to cash generated from operations: 2019

£000 2018 £000

Surplus for the year 3,727 1,933 Adjustments for non-cash items Depreciation of tangible fixed assets 3,348 3,346 Amortisation of government grants (796) (793) (Increase) in long-term assets (31) (61) (Increase)/Decrease in shared ownership units held for sale (822) 654 (Increase)/Decrease in debtors (32) 185 Increase in creditors, excluding loans and grants 30 60 (Decrease) in bond premiums (65) (187) (Decrease) in provisions (322) (191) Adjustments for investing or financing activities Profit from sale of tangible fixed assets (108) (32) Interest payable 3,851 5,246 Interest receivable (5) 5

Cash generated from operations 8,775 10,165

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 11. TANGIBLE FIXED ASSETS: HOUSING PROPERTIES Rented Properties Shared ownership

General needs £000

Housing for older

people £000

Supported

housing £000

Under

construction £000

Completed £000

Under

construction £000

Total £000

Cost At 1 April 2018 208,091 8,243 11,896 3,621 8,316 1,251 241,418 Additions 948 54 44 19,182 - 4,421 24,649 Schemes completed 8,247 - - (8,247) 2,857 (2,857) - Disposals - - - - - - -

Cost at 31 March 2019 217,286 8,297 11,940 14,556 11,173 2,815 266,067 Depreciation At 1 April 2018 25,091 1,697 2,474 - 412 - 29,674 Charge in year 2,690 107 191 - 77 - 3,065 Released on disposal - - - - - - -

Depreciation at 31 March 2019 27,781 1,804 2,665 - 489 - 32,739

Net Book Value at 31 March 2019 189,505 6,493 9,275 14,556 10,684 2,815 233,328

Net Book Value at 31 March 2018 183,000 6,546 9,422 3,621 7,904 1,251 211,744 Included within additions in cost of properties is £219k (2018: £550k) for interest capitalised during the year and £987k (2018: £1,503k) which is the cost of replacing components.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 12. NUMBER OF HOMES IN MANAGEMENT 2019

£000 2018 £000

Social housing General needs 1,436 1,422 Affordable rent 907 812 Intermediate rent 117 123 Housing for older people 225 225 Supported housing 118 118 Temporary housing 63 77 Shared ownership 189 164 Managed by others 41 41

Total owned 3,096 2,982 Leasehold properties 38 38 Managed on behalf of others 154 222

Total owned and managed 3,288 3,242 A further 193 homes were under development at 31 March 2019 (2018: 131). 13. OTHER TANGIBLE FIXED ASSETS Sheltered

housing scheme fittings

£000

Office fixtures &

equipment £000

Leasehold office

buildings £000

Total £000

Cost At 1 April 2018 689 344 387 1,420 Additions 11 179 159 349 Disposals - (91) (387) (478)

At 31 March 2019 700 432 159 1,291 Depreciation At 1 April 2018 338 237 387 962 Charge for the year 174 105 4 283 Disposals - (91) (387) (478)

At 31 March 2019 512 251 4 767

Net Book Value at 31 March 2019 188 181 155 524

Net Book Value at 31 March 2018 351 107 - 458

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 14. OTHER LONG TERM ASSETS 2019

£000 2018 £000

Share capital Interest in Iceni Homes Limited - - Interest in MORhomes plc 30 -

30 - Deposits Held on behalf of Colne 811 811 Held on behalf of Leaseholders 600 599

1,411 1,410 Share capital Participating interest in Iceni Homes Limited During the year Colne held four £1 (2018: four £1) ordinary shares in Iceni Homes Limited, a company registered in England and Wales. This represents a one-third (2018: one-third) holding of the issued share capital. Iceni was incorporated on 16 March 2004 and commenced trading on 1 July 2004. Its profit before tax and Gift Aid for the year ended 31 March 2019 was £416k (2018: 283k) and its aggregate share capital and reserves at that date was £0.6k. Interest in MORhomes plc During the year Colne acquired 40,000 £1 ordinary shares in MORhomes plc, a public limited company incorporated on 21 September 2017 and registered in England and Wales. The shares were issued at an average discount of 25%, giving a cash price of £30,000. MORhomes is a bond aggregating vehicle for the UK social housing sector, and issued its inaugural £250m bond in February 2019. The bond provides funding to nine registered provider groups in England and Wales and was rated A- by Standard & Poor’s. Colne may utilise MORhomes to issue fixed rate debt in future subject to funding need and market conditions. Associated undertakings During the year Colne acted as the Corporate Trustee for the following charitable almshouse trusts:

• Brightlingsea Santiago* • Chelmsford* • Copland* • Fullers • Writtle*

*On 30 June 2018 responsibility for Corporate Trustee was transferred to another organisation, to which Colne has no connection.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 14. OTHER LONG TERM ASSETS (continued) Deposits Deposits held on behalf of Colne represent the liquidity fund reserve held in trust in respect of funding received from Affordable Housing Finance plc. Deposits held on behalf of leaseholders represent funds held in respect of future expenditure. 15. HOUSING STOCK FOR SALE Housing stock is the cost attributed to the first tranche element of shared ownership schemes. The cost of shared ownership schemes is split between current and fixed assets based on the expected percentage of first tranche sales which is currently 25%. 2019

£000 2018 £000

Completed schemes 515 77 Under construction 384 -

899 77 16. DEBTORS 2019

£000 2018 £000

Due within one year Rent arrears 547 479 Provision for bad and doubtful debts (202) (132)

345 347 Prepayments and accrued income 560 453 Other debtors 52 125

957 925 17. CREDITORS: AMOUNTS DUE WITHIN ONE YEAR 2019

£000 2018 £000

Loans (note 19) 1,799 27,836 Government grant – housing properties (note 20) 775 793 Rents received in advance 588 359 Trade creditors 1,016 265 Disposal proceeds fund (note 22) 55 55 Other creditors 83 31 Accruals and deferred income 1,436 2,417

5,752 31,756

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 18. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2019

£000 2018 £000

Loans (note 19) 127,666 83,800 Government grant – housing properties (note 20) 52,857 53,615 Recycled capital grant fund (note 21) 151 172 Other creditors 715 829

181,389 138,416

19. LOANS

Housing loans and bonds 2019 £000

2018 £000

Bank loans 103,334 85,412 Bonds 26,131 26,224 129,465 111,636

Analysis of total debt 2019 £000

2018 £000

Within one year 1,799 27,836

After more than one year: Between one and two years 1,802 1,799 Between two and five years 37,538 999 In more than five years: Repayable by instalments 24,982 21,666 Repayable other than by instalments 65,038 61,000 Other issue costs (1,694) (1,631)

127,666 83,800

129,465 111,636 2019

£000 2018 £000

Orchardbrook Limited 1,581 1,609 Affordable Housing Finance Plc 24,550 24,615 Banks 105,028 87,043 Other issue costs (1,694) (1,631)

129,465 111,636 Housing loans from banks and other finance are secured by charges on housing assets and are repayable at variable and fixed rates of interest in the range of 1.65% to 11.17% (2018: 1.15% to 11.17%) per annum.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 20. DEFERRED INCOME: SOCIAL HOUSING GRANTS 2019

£000 2018 £000

At 1 April 2018, net of amortisation 54,408 54,691 Grants received - 510 RCGF utilised (note 21) 21 - Amortisation to Statement of Comprehensive Income (797) (793) At 31 March 2019 53,632 54,408 Due within one year (775) (793)

Due after more than one year 52,857 53,615 Social Housing Grant (SHG) is repayable in the event of the disposal of the related property. When this occurs the total original grant is repayable including the amortised amount. At 31 March the total amount of SHG potentially repayable was £65.1m (2018: £65.1m). 21. RECYCLED CAPITAL GRANT FUND

2019 £000

2018 £000

At 1 April 2018 172 172 Grants utilised (21) -

At 31 March 2019 151 172

Amounts three years or older where repayment may be required 151 172 22. DISPOSAL PROCEEDS FUND

2019 £000

2018 £000

At 1 April 2018 55 55 Interest accrued - -

At 31 March 2019 55 55

Amounts three years or older where repayment may be required 55 55 The disposal of a fixed asset in a prior year activated a restrictive covenant that requires Colne to reinvest into an asset of a similar nature.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 23. PROVISION FOR LIABILITIES

Repairs provision

£000

SHPS Pension

£000 Total £000

At 1 April 2018 178 1,082 1,260 Initial recognition of defined benefit pension liability - 774 774 Deficit contribution paid - (183) (183) Finance and other costs - (139) (139) Actuarial losses - 608 608

At 31 March 2019 178 2,142 2,320 The SHPS pension provision is detailed in note 25. 24. SHARE CAPITAL 2019

No 2018

No

At beginning and end of year 8 8 The shares provide members with the right to vote at general meetings but do not have a right to any dividend or distribution in a winding up, and are not redeemable. The par value of each share is £1. 25. PENSION OBLIGATIONS Social Housing Pension Scheme (SHPS) Colne participates in the scheme, a multi-employer scheme which provides benefits to some 500 non-associated employers. The scheme is a defined benefit scheme in the UK. 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 Colne is 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.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 25. PENSION OBLIGATIONS (continued) A full actuarial valuation of the scheme was carried out with an effective date of 30 September 2017. This actuarial valuation was certified on 28 November 2018 and showed assets of £4,553m, liabilities of £6,075m and a deficit of £1,522m. To eliminate this funding shortfall, the trustees and the participating employers have agreed a new recovery plan which replaces the previous tiered approach. Additional contributions will be paid, in combination from all employers, to the scheme as follows: Deficit contributions

From 1 April 2019 to 30 September 2026

£161.0m per annum (payable monthly and increasing by 2% each year on 1 April)

Note that the scheme’s previous valuation was carried out with an effective date of 30 September 2014; this valuation was certified on 23 November 2015 and showed net 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 had agreed that additional contributions would be paid, in combination from all employers, to the scheme in four tiers, with end dates from 2020 to 2026 and starting at £133.6m per annum with inflation rates of between 3% and 4.7% applied to each tier. Where the scheme is in deficit and where Colne has agreed to a deficit funding arrangement, Colne recognises a liability for this obligation. The amount recognised is 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 of 2.34% (2018: 2.60%). The unwinding of the discount rate is recognised as a finance cost. Present values of defined benefit obligation, fair value of assets and defined benefit liability

2019 £000

2018 £000

Fair value of plan assets 5,745 5,727 Present value of defined benefit obligation (7,887) (7,583)

Deficit in plan (2,142) (1,856)

Defined benefit liability to be recognised (2,142) (1,856) Reconciliation of opening and closing balances of the defined benefit obligation

£000

Defined benefit obligation at 1 April 2018 7,583 Expenses 6 Interest expense 191 Actuarial losses due to scheme experience (5) Actuarial losses due to changes in demographic assumptions 22 Actuarial losses due to changes in financial assumptions 591 Benefits paid and expenses (501)

Defined benefit obligation at 31 March 2019 7,887

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 25. PENSION OBLIGATIONS (continued) Reconciliation of opening and closing balances of the fair value of plan assets

£000

Fair value of plan assets at 1 April 2018 5,727 Interest income 145 Experience on plan assets (excluding amounts in interest income) – gain 191 Contributions by the employer 183 Benefits paid and expenses (501)

Fair value of plan assets at 31 March 2019 5,745 The actual return on the plan assets (including any changes in share of assets) over the year ended 31 March 2019 was £336,000. Defined benefit costs recognised in Statement of Comprehensive Income

2019 £000

Expenses 6 Net interest expense 46

Defined benefit costs recognised in statement of comprehensive income 52

Defined benefit costs recognised in other comprehensive income

2019 £000

De-recognition of funding agreement liability as at 1 April 2018 1,082 Recognition of net pension deficit as at 1 April 2018 (1,856)

Initial recognition of multi-employer defined benefit pension scheme (774)

Experience gains and losses arising on the plan liabilities – gain 5 Effects of changes in the demographic assumptions underlying the present value of the defined benefit obligation – loss (22) Effects of changes in the financial assumptions underlying the present value of the defined benefit obligation – loss (591)

Actuarial loss in respect of pension scheme (608)

Total amount recognised in other comprehensive income – loss (1,382)

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 26. FINANCIAL INSTRUMENTS The carrying values of Colne’s financial assets and liabilities are summarised below:

Financial assets 2019 £000

2018 £000

Measured at undiscounted amount receivable:

Trade and other debtors (note 16) 397 606

Financial liabilities 2019 £000

2018 £000

Measured at fair value & designated as an effective hedge: Derivative financial liabilities (note 27) 961 943

Measured at fair value through the surplus for the year: Ineffective interest rate swaps 2,286 2,192

3,247 3,135 Measured at amortised cost: Loans payable (note 19) 103,334 85,412 Bonds payable (note 19) 26,131 26,224

Measured at undiscounted amount payable: Trade and other creditors (notes 17,18) 56,869 55,760

189,581 170,531 Ineffective interest rate swaps are valued at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. Loans payable include £52.4m (2018: £31.8m) of loans with embedded fixes. These have been measured at amortised cost. Colne’s income, expense, gains and losses in respect of financial instruments are:

2019 £000

2018 £000

Interest income and expense Total interest income for financial assets at amortised cost 5 5

Total interest expense for financial liabilities at amortised cost 3,868 5,894 Fair value gains and losses On derivative financial liabilities designated as an effective hedge (18) 175 On financial liabilities measured at fair value through surplus for the year (93) 155

3,762 6,229

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 27. HEDGING FINANCIAL INSTRUMENTS Due within one year Due after one year

2019 £000

2018 £000

2019 £000

2018 £000

Derivative financial liabilities designated as an effective hedge

Interest rate swaps - - 961 943 Interest rate swaps are valued at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. Cash flow hedges The following table details the notional principal amounts and the remaining terms of interest rate swap contracts designated as cash flow hedges outstanding at the reporting date: Average contract

fixed rate Notional principal

value Fair value

2019 %

2018 %

2019 £000

2018 £000

2019 £000

2018 £000

More than five years 4.46 4.46 3,000 3,000 961 943

The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is three month’s LIBOR. Colne settles the difference between the fixed and floating interest rate on a net basis. All interest rate swaps reduce Colne’s cash flow exposure resulting from variable interest rates on borrowings. The hedged cash flows are expected to occur and to affect surplus and deficit over the period to maturity of the interest rate swaps. £1,500k of the cash flow swaps mature in 2026 and the remaining £1,500k matures in 2031. 27. CAPITAL COMMITMENTS 2019

£000 2018 £000

Expenditure contracted for but not provided for 13,954 15,595 Expenditure approved by the Board but not yet contracted for 9,602 29,788

23,556 45,383 Capital commitments will be funded from existing facilities and cash generated from operating activities.

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COLNE HOUSING SOCIETY LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 28. OPERATING LEASES Colne holds properties under non-cancellable operating leases. At 31 March 2019 the total commitments under these leases were as follows: 2019

£000 2018 £000

Leases expiring within one year 421 482 Leases expiring between two and five years 736 686

1,157 1,168 29. RELATED PARTIES Key management personnel are Board members and the Executive Team. Their only transactions with Colne are remuneration which is disclosed in notes 8 and 9. Transactions with pension schemes which benefit employees are disclosed in note 25. Colne holds a 33.3% share in Iceni Homes Limited, a company registered in England and Wales. Iceni provides development design and build services on behalf of Colne. During the year Colne paid Iceni £12.5m (2018: £12.2m) in development costs and associated fees. Colne provides accounting services to Iceni under a service level agreement. During the year Colne received £50.7k (2018: £38.9k) for this service. At 31 March 2019 Colne owed Iceni £0.5m (2018: £nil). There is a Gift Aid payment receivable from Iceni for the year to 31 March 2019 of £350k (2018: 140k).

Registered under the Co-operative and Community Bene� ts Societies Act 2014 No. 20799R

Registered under Section 5 of the Housing Act 1996 No. LH1651

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