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Plus Dane Housing Corporate Plan 2015-2020

Contents Page

1. Executive Summary outlines aims of the plan, context in terms of operating

environment and consideration of internal capability.

2. Corporate Plan outlines the Purpose, Medium Term Aspirations and Key

Strategic Objectives over the next 5 years.

3. Business Plan – sets out clearly by each Executive Directorate the

deliverables that will underpin the successful delivery of the corporate strategy

in the short to mid-term (1 to 3 years)

4. Financial Plan – identifies resources and assumption over the 5 years of the

Corporate Plan and the 30 year financial plan

5. Measures of Success for Corporate Plan and Business Plan – scorecard

needs to be updated/changed

6. Assurance – identifies key roles and approaches to assurance on the

delivery

7. Strategic Risk Map – using the environmental analysis and internal review

identifies the principal risks that could prevent successful delivery of strategic

objectives

8. Supporting Documents

a. Leadership Team structure

b. Board profiles

c. Detailed directorate plans

d. Programme management arrangements

e. All associated strategies


1. Executive Summary

Plus Dane is an organisation with a social purpose.

Over the last two years both the operating environment and Plus Dane have

changed significantly.

Internally we have streamlined our governance arrangements, implemented a new

leadership team structure, restructured our funding arrangements and started a

fundamental review of the organisation’s purpose and the form needed to deliver that

purpose.

Externally the operating environment continues to change with;

changes in government policy and new legislation – financial envelope

continues to shrink; continued shrinkage to public sector expenditure

deregulation and the implications within Cheshire and Merseyside

increased merger activity and new entrants to the market (providers and

investors)

prevailing economic conditions particularly concerning cost of borrowing and

utility inflation

changing demographics – ageing population and immigration

consumer behaviour and technological developments

climate change and severe weather

stronger regulation increasingly focused on financial viability and governance.

Against this backdrop there is a recognised need across the organisation to reduce

significantly the cost base and our financial modelling includes cost reductions of

between 5% and 20% with robust assessments of the impact on services that would

result in each scenario. The outcome is a financial plan that aims to improve our

financial resilience by taking out at least £7 million from the bottom line which will

make a positive contribution to Plus Dane’s operating margin and profitability.

To drive this shift Plus Dane has developed four corporate goals that

A customer offer that understands the products and services that are needed

in our target markets and clearly positioning our cost and quality offer.

Achieving financial resilience building sufficient headroom, able to withstand

‘external shocks’ and to be in charge of our future destiny.

A focus on its people goals based on the recognition that the strength and

future quality of delivery is based on its staff.

Growth to be pursued in areas where it has strengths and where growth helps

to protect the business.


The foundations have been laid to enable Plus Dane to continue to have a positive

impact by enhancing performance whilst simultaneously advancing the economic,

environmental and social conditions across its target markets.

Plus Dane’s aim within the short to medium term is continue to future-proof the

organisation by building both capacity and capability.

2. Corporate Plan

2.1. Purpose

Plus Dane is an organisation with a social purpose; there to provide housing at

below market cost to tenants and customers of modest means, allowing them to

build the next steps in their lives where appropriate. To do this Plus Dane will

offer housing and other services across a wide range of tenures and markets

whilst retaining its social ethos at its core.

2.2. Context

Plus Dane is a housing association which has operated for over 40 years in a

number of different forms across Merseyside and Cheshire. It currently owns and

manages c. 19,000 homes broken down as follows:

Merseyside - 7,800

Cheshire East - 4,500

Cheshire West and Chester - 600

Ellesmere Port & Neston management contract – 5,800

It employs c. 800 staff organised across three directorates: Neighbourhoods,

Property and Corporate Services.

2.3. Working Principles (Values)

As established by staff in 2015 the following principles are applied to Plus Dane’s

approach:

be clear about what we do Get it right first time Communicate well Take responsibility


2.4. Long Term Aspiration

Through well-managed change and business transformation to be sustainable, growing and fully engaged with its stakeholders; delivering services and products that are co-designed and targeted to local needs and markets. Services, both internal and external, will be digital by design.

2.5. Strategic Goals

As a responsible, social landlord, Plus Dane have a role to play in delivering solid

services and protecting public investment. Plus Dane will continue to actively

manage and deliver homes, alleviate need, and create capacity to invest in

people; tenants, customers and staff.

Plus Dane’s five year plan consists of four long term goals, which focus on its

customers, financial resilience, people and products and services:

By 2021 Plus Dane will:

1. Provide a range of products and services that its customers want and can

afford resulting in higher retention rates, lower customer debt and higher

advocacy levels.

2. Be financially resilient by improving its operating margin to 25%, and

optimising all income streams whilst maximising return on its investments.

3. Grow the organisation to achieve a greater positive impact and economies of

scale; with a good mix of traditional and non-traditional income streams;

increasing stock numbers substantially through organic growth and the pursuit

of mergers and acquisitions that are aligned to its core purpose.

4. Have created an environment of engagement, accountability, empowerment

and opportunity for its people in which all colleagues understand the

contribution they make to business success and feel they make a valuable

contribution.


3. Corporate Plan Objectives

The above long term goals are underpinned by a suite of corporate objectives

outlined below:

3.1. Customers, Products & Services

In 2016 Plus Dane will deliver a new Customer Access Strategy. It will

change the way Plus Dane interacts with customers and ensure a clear

understanding of how its current and future tenants and customers wish to

do business with the organisation and what products and services they

want to be delivered. By 2018 the customer experience will be significantly

improved and the organisation’s understanding of current and future needs

will be clearer, all driven by customer insight and intelligence.

Throughout 2016 a refreshed Tenant and Customer Engagement strategy

will be implemented. It will create an environment in which our customers’

voices will be heard, listened to and acted upon in the shaping,

improvement and scrutiny of the organisation.

Continuing throughout 2016 Plus Dane will review all neighbourhood

housing services, empty property management, income and financial

inclusion to ensure it is able to provide targeted support for tenants and to

safeguard income for the business, particularly in response to the Welfare

Reform changes.

A new Supported Housing Strategy will be developed in 2016, which will

set out the framework for services to support Plus Dane’s most vulnerable

tenants and clients, considering the financial viability and service impact,

particularly in the context of reducing external funding and the potential

rent regime changes.

Plus Dane’s specialist community safety service will be extended across

the organisation in 2016, to provide expert, specialist and consistent

support to tenants and communities.

Plus Dane through its non-core housing offer will focus on

supporting tenants out of dependency,

helping people stay in their homes longer,

protecting its assets where it is the majority landlord, and

maximising the Plus Dane pound.

To support these aims Plus Dane will specifically:

develop its capacity building and employment initiatives to support

tenants into sustainable employment.


maintain and develop new strategic partnerships that build the

capacity of tenants to be more independent

access external funding to deliver tangible benefits to tenants and

customers.

From April 2016 Plus Dane will deliver a digital by design approach.

Aimed at both internal and external services it will look to future IT and

digital design and not seek to “catch up” with others, with a drive to

maximise return on investment.

Plus Dane continues to deliver its repairs service in the most effective and

efficient way. In the first instance Board have asked the DLO to

concentrate on maximising its efficiency over a three year period from April

2016 to March 2019; Plus Dane will also review its repairs policy and

increase its investment in stock to ensure better value for money.

By March 2017a full review of office accommodation will be completed in

conjunction with the Customer Access and People strategies, with the

main aims of improving customer service provision, creating a great

working environment and reducing costs both financial and environmental.

3.2. Financial Resilience

From April 2016 deliver a new Financial Strategy. Through prudent

management and organisation stability it will deliver:

Covenant headroom of greater than 10%

Group interest cover which exceeds 120%

Debt per unit to be less than £25k

Operating margin which exceeds 25% (with a “profit for purpose”

goal)

A fully funded development programme with no reliance on sales

income or right to buy

By March 2017 a simplification process will be complete. This will bring

together all owned stock into one organisation.

The organisation will refinance during 2018.

Throughout the period of the plan will continue with our strategic aim of

managing the disposal of assets held within three60.

3.3. Growth

A new Growth and Investment Strategy will begin from April 2016. It will

deliver


At least 438 new build units upto March 2018 with potential scope

for an additional 150 by then Thereafter we will seek to increase

new build development aiming towards circa 400 per year, financing

and market conditions allowing

A piece of work will be commissioned to help Board decide what the

optimum size is for the organisation moving forward. This will

include a full matrix of opportunities within Merseyside and

Cheshire by end of 2016

In determining optimum size Board will in the future consider

potential mergers and adopt the National Housing Federation

merger code. In terms of any current approaches to merger Plus

Dane’s Board have determined:

They do not seek any further geographic spread, and therefore potential partners need to be in their core area of Cheshire and/or Merseyside

Any merger would need to demonstrate the ability to add to the financial resilience of the organisation, for example, improve margins by generating synergies and should enable any new organisation to do more than the individual entities

They would prefer not to enter into any discussion about group structures, only structures that would drive out efficiencies and ensure good governance through proper consolidation

The most important consideration would be that any potential partner was able to demonstrate that it shared the same value base as Plus Dane

Plus Dane’s Help to Buy Contract continues to generate a significant

financial surplus into the organisation. Throughout 2016, Plus Dane will

aim to exceed its performance targets with the HCA and ensure it is in a

strong position to secure an extension to the contract from 2017-2020.

Building on its significant experience in both delivering and managing

homes for others Plus Dane will continue to explore new opportunities in

this area, where they can demonstrate a positive strategic and financial

impact on the organisation; delivering profit for a purpose. By quarter 1

2017/18 Board will have determined its position regarding rebidding for the

Ellesmere Port & Neston housing management contract.

In the course of this year respond to the opportunities presented as part of the

emerging devolution arrangements in both Merseyside and Cheshire.


3.4. People

A new People strategy will go live from April 2016. This will focus on

managerial capability and leadership capacity whereby:

100% of Leadership Team will have undertaken development in line

with the Leadership Framework within the next two years

90% of managers will achieve a coaching qualification within five years

50% of colleagues will see Leadership Team as effective role models

5% of the workforce will be made up apprentices or student

placements within the next five years

A fundamental aspect of its People strategy is to develop a plan to attract,

develop and retain the talents required to achieve Plus Dane’s goals which

is underpinned by a competitive employment offer.

By its AGM in 2016 Plus Dane will have delivered a robust approach to

Board succession planning resulting in 50% of the Board being refreshed.

The plan will refresh regularly the composition of Board and Committees

and continues to develop the right mix of skills and experience to support

the strategic direction of the organisation.

4. 2016 Business Plan Key Activities

Following the 2015 Leadership Team review, the organisation moved away from any

sense of a geographically focused structure to a functional model; the outcome was

three directorates with the responsibility for

Neighbourhoods,

Property and

Corporate Services.

In order to deliver the Corporate Plan and associated strategies, detailed three year

implementation plans have been developed; this section presents a detailed level

overview of what each Directorate will deliver in 2016/17.

Neighbourhoods 2016 Key Activities By when

Complete review of neighbourhood services and staff deployment including community safety

Q3

Developed a new Supported Housing Strategy Q1

Produced the “Landlord Plus” strategy Q2

Developed the non-core housing offer Q4

Implement key elements of Customer Access strategy Q4

New tenant and customer scrutiny panel established Q2

Plus Dane Voices developed and delivered Q3

Review the agile working pilot and consider application across Q1


neighbourhoods and other Directorates

Decision on retendering of EPN Q1

Waves of Hope test and develop model and complete independent evaluation

Q4

Property 2016 Key Activities By when

Agree a “standard” for investment in existing retained housing stock. Q4 17/8

Matrix of growth opportunities produced that will establish a list of potential opportunities for merger growth and develop a tailored approach to each.

Q3

Agree the right balance for growth in products and services Q3

Agreement of optimum size for future organisation Q3

Develop an accommodation strategy in line with our agreed guiding principles

Q2

Implement a new Repairs policy, void standard and 3 star gas specification

Q1

Develop standard approach to facilities management Q2

Produce and mobilise a single materials supplier Q3

Review our Energy Management strategy building on previous work with SHiFT and including the approach to Green investment

Q4

Deliver Asset Management compliance and Health & Safety action plan

Q4

Develop at least 123 new affordable homes Q4

Corporate Services 2016 Key Activities By when

Review the form and function of Business Assurance Q1

Review the form and function of Finance Q3

Review the form and function of IT Q1

Developed a clear, cost effective recruitment and selection process. Q3

Developed a high quality induction programme. Q1

Developed a performance management framework which gives clarity on colleagues’ objectives, productivity and is linked to a behaviour framework.

Q4 17/18

Developed a talent management plan including a holistic succession and workforce planning approach.

Q4

Deliver an approach to change that is clear, consistent and timely. Q4

Review organisation terms and conditions of employment. Q4

Develop our apprentice offer Q2

Integrate essential business systems, particularly focused on Asset Management, Property and Finance.

Q4

Drive the digital transformation of the organisation through o completion of Direct Labour Organisation related systems,

Q2


o implementing the Neighbourhood Agile Working Solution, o implementing the engagement and campaigns module within

CRM as well as the insight function, o Migrate remaining paper based records to EDRM solution. o Supporting the delivery of the Customer Engagement strategy

via the development of digital Plus Dane Voices database o Support the delivery of the Customer Access Strategy via the

further development of digital self-service channels on the tenant app and the interactive area of our website

o Developing automated electronic materials invoice to support

the delivery of efficiencies via a DLO single supplier o Further development of a digital Assets &liabilities register

tbc Q4(tbc) Q4 Q3 Q4 Q3 Q4

Deliver a Collaboration Strategy that will set out a new way of partnership working

Q3

Develop a digital communications strategy that supports the organisation’s aims for a broader digital offer

Q4

Establish a Public Affairs and Policy function Q3

Review all tenant communications to align with revised policies Q1

Deliver a simplification process for governance structures Q4

Deliver Board succession planning Q2

Strong Board training and induction programme Q2, Q3

Deliver a continuous improvement framework Q2

Secure new and cost effective funding Q2 18/9

Produce a Procurement strategy Q1

Establish a strategic procurement function Q2

Define and implement finance KPI’s Q3

Introduce monthly reporting of actuals vs budget Q1

Migrate reporting from UKGAAP to FRS102 Q2


5. Financial Plan

Introduction

The Business Plan for Plus Dane Group covers a 30 year period and summarises

the projected activities of the Group.

The plan does not take account of the impact of the requirements of FRS102 as

these are being worked on as part of the IFRS1 implementation plan. We are

working our new external auditors KPMG finalise this project.

FRS102 will have a material impact on the Business Plan and an updated plan

will circulated for Board Approval in April 2016. This will include reconciliation

from this plan to the revised one which will be discussed in detail with members

of the Audit and Risk Committee.

The April Plan will then be delivered to the banks at the end of April and will be

used as the base for the 2016/17 covenants in Cheshire.

In Merseyside we will need to renegotiate the existing covenants to neutralise the

impact of the change in accounting rules. This will be done during the summer.

The plan includes:-

a. Assumptions.

b. Efficiency Programme

c. Asset Management and Development

d. Treasury Management

e. Security

f. Covenants

g. Financial Framework and Stress Testing

h. Summary Financials

a) Assumptions

i. The plan assumes that rents for properties let as social rented

housing will be subject to the Governments rent reduction policy.

The policy is that rents will decrease by 1% in April 2016 with

further reductions of 1% being applied in 2017, 2018 and 2019.

Following this the plan assumes that rents will rise by CPI2 which

has been assumed to be 2.0%. For shared ownership rents and

market rented schemes rents are assumed to increase at CPI +1%.

1 International Financial Reporting Standards, which form the basis for the new UK accounting rules under

Financial Reporting Standard 102. 2 Under the rent settlement this should be CPI+1%.


ii. The plan assumes that rents (inclusive of service charges) for

properties developed under the affordable rent regime are at 80%

of market rent. The rent will decrease by 1% from the April 2016

with further reductions of 1% being applied in 2017, 2018 and 2019.

Following this rents will rise by CPI. CPI has been assumed to be

2% for 2017 and throughout the remainder of the Business Plan.

iii. Service Charges are variable and have been included on the basis

of budgets prepared on a scheme by scheme basis for 2016.

These have been increased by RPI for the life of the plan which is

assumed to be at 2.2% for 2018, 2.5% for 2019-2020 and then

these are conservatively assumed to increase at 2.0% throughout

the remainder of the Business Plan. This ensures that the increases

in service charges are consistent with rental increases.

iv. The plan currently does not take into account the cap on housing

benefit at local housing allowance levels. This cap predominantly

affects service charges (i.e. rent plus service charges) and there is

a wholesale review of services charges being undertaken, the

outcome of which will be fed into later plans. The potential impact of

the LHA cap will be considered as part of the scenario testing in the

April plan.

v. Other costs are assumed to increase in line with RPI as stated

above. Historically, costs would have been assumed to increase at

RPI, with income increasing at either RPI+0.5% or now CPI+1%. As

stated above in this plan it is assumed that rents increase at CPI.

Given that the difference between RPI and CPI is around 0.75-

1.00% then over a prolonged period this difference between CPI

and RPI would be very detrimental to the business. In that instance

we would look to move the cost base towards CPI inflationary

increases (for example, pay awards, contracts etc.). This approach

is becoming more common across all sectors as RPI becomes less

prominent generally. We will demonstrate the impact of this wedge

between CPI and RPI in the sensitivity testing.

vi. Voids are based upon present trends and reflect increased tenancy

churn and repeated void costs for supported stock within Plus Dane

Cheshire for example (Homeless accommodation):

Void rates Cheshire Merseyside

General Needs 2.00% 2.02%

Sheltered 2.50% 2.02%

Supported 7.50% 2.03%


Shared Ownership 3.00% 0.00%

Market Rent 2.00% 6.06%

vi. Bad Debts are based upon present trends which include the impact of the

spare room subsidy. The plan takes into account the current directive

from the Department of Work and Pensions that universal credit will be

rolled out to all North West Local Authorities in April 2016. The impact of

this has been factored into bad debt assumptions and increased

transactional costs as a consequence of direct payments. The

percentages applied are as follows:

vii. Interest rates and repayments are based on:

For fixed interest rate loans the actual interest and repayments have

been taken into account in the plan.

For variable interest rate loans the interest has been based upon LIBOR

rates advised by Centrus, the Group’s treasury advisors (this is based on

market expectations plus a margin for prudence):

Year Libor

2017 1.42%

2018 1.81%

2019 2.35%

2020 2.81%

2021 2.96%

2022 3.05%

2032 3.59%

2042 4.04%

Overall average 3.54%

viii. The plan does not include any potential uplift from the Pay to Stay

scheme. This scheme is voluntary for housing associations and Plus

Dane’s participation in this will be considered as part of the Rent Policy

review.

ix. The plan does not assume the renewal of the Ellesmere Port and Neston

Contract. If we do decide that we want to work up a bid the impact of this

Bad debt Cheshire Merseyside

General Needs 2.45% 2.10%

Sheltered 2.05% 2.10%

Supported 2.05% 2.10%

Shared Ownership 0.00% 2.10%

Market Rent 2.05% 2.10%


contract on the plan will be presented as part of the board approval for the

bid.

b) Efficiency Programme

The business plan reflects the efficiency programme that is outlined in the Budget

paper. In summary the overall savings assumed are:

The chart below shows the movement on the Group’s operating costs (excluding

depreciation and bad debts) over the 5 year period.

This shows that excluding inflation operating costs reduce from £35m in 2017 to

£30m, in 2021. This is a reduction of 7% on a nominal basis or 15% after adjusting

for inflation.

It is important to note that other potential savings have not been incorporated in the

plan, these include savings from:

Establishing a strategic procurement function, focused and resourced to

deliver our strategy to procure all materials and services efficiently and

sustainably;

Rationalisation of the Group’s office accommodation;

Efficiency Savings £000's 2016/17 2017/18 2018/19 2019/20 2020/21

Financial Forecast Return (FFR) 729 729 2,065 3,236 6,873

Away Day 2,754 3,870 5,154 6,064 6,726

Business Plan/Finance Strategy (b) 3,330 4,731 5,771 6,781 7,277

2016/17 Budget (a) 2,791 4,951 6,033 7,018 7,504

Difference (a) - (b) (539) 220 261 237 227


Rationalisation of the Group’s legal structure;

Pension strategy and review of Group’s terms and conditions; and

The second phases of the reviews and restructures of the three directorates.

These will be included in future plans once they have been quantified.

c) Asset Management and Development

Reinvestment

The Group uses a combination of stock condition software and externally

commissioned surveys to provide a forecast for the major repairs required

throughout the stock.

All of our properties meet the decent homes standard and the cost of maintaining

this is less than £500k per annum. However, based on a recent stock condition

survey there is a requirement for around £70m to be spend on improvement works to

our existing stock. Please see the Growth and Investment Strategy for further details.

The table below shows the amounts that we have included in the current business

plan (excluding inflation):

2017 2018 2019 2020 2021 Total

Revenue 1,670 1,478 1,445 1,445 1,445 7,483

Capital 6,580 7,842 8,624 8,968 9,639 41,654

Total 8,250 9,320 10,069 10,413 11,084 49,137

The difference between the £70m and the £49m predominantly relates the quantum

of improvement works that we would recognise through operating costs (i.e. those

that we cannot capitalise). Including these amounts in full would reduce operating

margins by around 5%. To enable this spend we will:

Review phasing of spend to lessen the impact on the I&E, especially in the

short-term. In the longer-term such expenditure could be funded through

profits from market sale, for example;

Review operating cost and major work savings from the disposal of stock

(especially those that require substantial expenditure); and

Look to achieve additional savings through procurement and the DLO to off-

set the increase in operating costs.


Active Asset Management

For the current plan we have assumed the disposal of 400 properties over a 6 year

period. This is assumed to be a combination of both open market sales of void

properties and also sales of tenanted stock at existing use value. The average sale

price, based on our experience to date, is assumed to be £74k.

The Disposal Strategy will to some extent help to fund the cost of the reinvestment

programme. The current plan includes fewer disposals that would be required to fund

the reinvestment programme in full. The reason for this reduction is predominantly

that we are not assuming any reduction in operating costs from a specific disposal3.

This means that any disposals will reduce the operating margin which clearly we are

looking to maintain. This issue is compounded by right to buy disposals which further

erode operating margin.

As more detailed work is completed on the Disposal Strategy the specific financial

implication will become clearer and we will reflect this in the plan.

Right to Buy

The plan also includes assumptions for Right to Buy. For the FFR we included a

high-level assumption of 2% take-up, 1,100 units over 5 years. Since then we have

performed further analysis looking at (amongst other things): proportion of preserved

right to buy; amount of tenants on housing benefit; and experience from Cheshire

since the transfer and from Ellesmere Port and Neston. This has resulted in a

reduction to 500 units over 5 years. The revised figures are consistent with the early

indications from the pilot schemes but these amounts will be refined over time as

more information becomes available.

Development

The current policy environment presents Plus Dane, and all housing associations,

with clear challenges in the future development of affordable housing. The

Government’s policy priority of increasing home ownership should play to the

Group’s strengths in shared ownership and private sale. However, lack of grant

availability and reduction/abolition of affordable rent and shared ownership provision

through section 106 agreements, will make delivering this provision more

challenging.

3 Clearly disposing of poorly performing properties will improve operating costs (e.g. from reduced voids)

although at this stage this is difficult to quantify.


Whilst cognisant of this, the Board has been clear that they want to continue to

deliver affordable rented properties. The current plan aims to balance the delivery of

affordable units which will be cross-subsidised by the development of properties for

sale on the open market.

The plan takes into account the current development plans under 2015-18 affordable

homes programme. In addition we are replacing right to buy sales with new

affordable rent and shared ownership properties.

We have also included an uncommitted pipeline programme into the plan. This

delivers an average of 150 units per annum split equally between affordable rent,

shared ownership and market sale. We have not assumed any grant for future social

housing development although there is an expectation that grant may potentially be

available for shared ownership units.

In the longer-term we will be looking to potentially develop around 500 units per

annum, c3% or total stock. However, this ambition is dependent on us delivering our

strategic plans and efficiency programme to ensure that we can raise additional

funds for development in 2018.

The table below shows the overall movement in stock numbers and private

development numbers:

Units 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total

Opening total stock

18,285 18,276 12,754 12,862 12,965 12,921 12,962 13,101 13,146

Voluntary sales

-33 -50 -50 -72 -95 -100 -400

RTB sales -106 -102 -97 -94 -91 -1 -1 -1 -1 -494

RTB replacement

99 144 88 42 42 40 455

2015/18 programme

130 70 111 127 438

Pipeline 54 100 100 100 46 400

Ellesmere Port

-5,539 5,539

Movement -9 -5,522 108 103 -44 41 139 45 -1

Private sale 50 50 50 50 50 50 300

The mix of the 2015/18 programme is current 25% shared ownership and 75%

affordable rent. However, between now and the completion of the programme the

expectation is that the proportion of shared ownership will increase to around 35-

40%. In order to complete the programme and to receive the full allocation of grant it

may be beneficial to have a land bank provision. The plan does not currently provide


for this, however, if there was an opportunity to acquire land we would review the

impact of this on the plan.

For all new affordable development we have assumed that this is split equally

between affordable rent and shared ownership.

Three60 properties

The Three60 properties transferred to Merseyside are assumed to be sold (such

sales will be subject to individual business cases):

Centurion and Vista - 2016/17;

Lingley - 2017/18; and

The former show homes - 2018/19.

In addition the proceeds of the sale of Beetham and Delph (c£7m) are assumed to

be transferred to Merseyside.

d) Treasury Management

In December 2015 the Board agreed to increase the Group’s hedging ratio from

c50% to c80%. This enables the Group to both lock-in savings from forecasted

reduced rates and to remove the sensitivity to an increase in rates. Once these

hedges are executed they will be reflected in the April plan.

Regarding funding based upon the plans new facilities of circa £36m will be required

in 2019 in Cheshire and circa £40m will be required in Merseyside also in 2019.

The table below shows the funding requirements of the plan:

Year Merseyside Cheshire Total

Repayment New

debt

Repayment New

debt

Repayment New

debt

2016/17 1,657 1,657 0

2017/18 2,509 2,509 0

2018/19 39,011 35,500 2,000 41,011 35,500

2019/20 2,514 42,000 40,000 44,514 40,000

Total

45,691 35,500 44,000 40,000 89,691 75,500


This shows that over the next two years we do not require any additional debt, but in

2019 we will need to refinance some of the current facilities as they expire. This

analysis will be refined and analysed in more detail over the coming months.

e) Security

The table below shows the summary security position across the Group.

£m Merseyside Cheshire

Charged4 258.3 147.5

Loans 208.8 140.0

Headroom 49.5 7.5

19% 5%

Charged but unallocated 0 6.5

Uncharged 54.2 12.0

In Merseyside we have 19% headroom (i.e. asset values can fall by 19% before

we reach covenant levels). In Cheshire the headroom is only 5%. However, there

are £6.5m of assets that are charged but unallocated which we could allocate to

the syndicated loan. In addition, there are £12m of unencumbered assets in

Cheshire which we will look to charge. When these are all included the headroom

will be 18%. We will review the timing of these exercises in light of the Group

Simplification programme.

f) Covenants

For the Cheshire syndicate we are currently being measured against the second

year of the 2014 plan and this form the basis of the year-end covenants as at

March 2016.

For the next financial year we will be measured against the plan that will be

approved in April 2016. For information the table below shows how the covenants

would be set based on this plan.

4 This shows the discounted value after deducting the asset cover amount.


One point to note from the above is that the above includes income from property

sales (i.e. right to buy and voluntary sales). We are in discussions with the syndicate

banks about potentially removing this income from the covenant calculation as we do

not want to be in a position that we require these sales, especially as the right to buy

sales are not in our control. This will be addressed in advance of the finalisation of

the plan in April.

Plus Dane Cheshire Loan Covenants Estimate for 2016/17 Business Plan

March 2017 March 2018 March 2019 March 2020 March 2021

Interest Cover

Adjusted operating surplus 8,593,600 9,869,900 10,576,700 10,986,400 11,248,900

Total Finance Costs 6,095,200 6,300,000 6,611,900 6,887,200 7,007,100

Interest Cover (Annual) 141% 157% 160% 160% 161%

Operating surplus

Net Cash From Operating Activities 7,376,500 8,753,400 10,407,200 10,360,800 10,541,400

(Less) Capital Repairs (2,635,000) (3,149,800) (3,964,200) (4,357,300) (4,456,700)

Add Income from Property Sales 3,852,100 4,266,300 4,133,700 4,982,900 5,164,200

8,593,600 9,869,900 10,576,700 10,986,400 11,248,900

Finance Costs

I&E interest payable 6,095,200 6,300,000 6,611,900 6,887,200 7,007,100

6,095,200 6,300,000 6,611,900 6,887,200 7,007,100


The table below shows the forecast plan against the Merseyside covenants.

This shows that on all of the covenants we have in excess of 10% headroom, the

tightest being in 2019 on the interest cover covenant with Nationwide. We will be

looking to amend these covenants to neutralise the impact of FRS102.


g) Financial Framework and Stress Testing

The chart below shows the performance of the current plan against the new

Financial Framework. As you are aware, we have re-cast our business plan in

response to the imposition of rent cuts announced in the Summer 2015 budget.

In accordance with the revised Governance and Financial Viability Standard we are

required to submit to the HCA a business plan and a stress testing report. One of

the ways in which this is demonstrated is by carrying out detailed and robust stress

testing, our approach includes:

Modelling work to understand the most sensitive assumptions and the

maximum change we can absorb;

A ‘Multi Scenario’ model which includes a combination of adverse

circumstances happening all at the same time which break the plan; and a

Mitigation plan which shows how we recover and prevent failure.

We have performed a series of sensitivities on the key assumptions in the plan. The

aim of this was to understand how sensitive the plan is to a movement in a single


assumption, using Group interest cover to exceed 120%5 as a proxy for financial

strength. The aim was to push a single assumption until the plan breaks.

RPI assumption increased to 5%

Rent cuts for a further 4 years

Void loss and bad debt provision doubled within the plan

LIBOR increased to 6% from 2020/21

This sensitivity testing shows us that the plan is most sensitive to an increase in RPI

(which drives our cost base assumptions). In this scenario income will be increasing

at 2% per annum with costs increasing at 5%.

The plan can withstand a further 4 years of 1% rent reductions although we would

need to find further efficiency savings to mitigate some of this.

A doubling of voids and bad debts assumptions breaches the Financial Framework

for three years although the plan does recover in the medium term.

5 O

perating surplus, add back depreciation deducting capitalised major repairs compared to net interest payable.


As has previously been reported the plan is very sensitive in the medium term to an

increase in LIBOR. As part of the Group’s refinancing in 2018 we will look to

increase the amount of fixed rate debt therefore reducing the sensitivity of the plan

movements in interest rates.

Multi-scenario Testing

For this analysis we have considered the impact on the plan of a combination of the

above four sensitivities, i.e.:

RPI assumption increased to 5%;

Rent cuts for a further 4 years;

Void loss and bad debt provision doubled within the plan; and

LIBOR increased to 6% from 2020/21.

The impact on interest cover and operating margin is shown below:

This shows that we quickly breach the Financial Framework and that by 2020

interest cover is less than 100%.


Mitigation Plan

The above multi-scenario results in very large adverse effect on Plus Dane’s

financial position, which can be mitigated using a combination of the strategies

outlined below. In addition, in a scenario like this, or more extreme, we would

consider other mitigations, including, a large reduction in the service provision or a

large sale of properties.

The following mitigants have been applied to the multi-scenario above in addition to

the efficiency savings already assumed in the base case:

Plus Dane’s cost base assumptions linked to CPI as opposed to RPI

£3m or 15% reduction in management costs from 2020/21 onwards.

£1.5m saving in planned and £1m saving in responsive maintenance spend

from 2020/21 onwards.

Major repairs spend has been reduced by 60% or £4-£5m on an annual

basis for the duration of the multi-scenario test above.

This demonstrates that in the unlikely event that all of these risks materialised there

is sufficient time and capacity to mitigate the events and ensure compliance with the

Financial Framework.


h) Summary Financials

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6. Measures of Success for Corporate Plan and Business Plan

Plus Dane employs a ‘golden thread’ approach to performance management.

Goals and Objectives are cascaded from the Board and Chief Executive through

each tier of the organisation and are underpinned by a fresh impetus of personal

accountability.

To ensure that Board has the most contemporary and accurate view of the

organisation, performance and risk is discussed at every Board meeting using a

strategy map that links delivery of corporate objectives, key risks and

performance outcomes.

The balanced scorecard indicators displayed below have been agreed with Board

and identified as the critical measures of success for the business plan, these are

underpinned by several operational indicators and variables, which are explored

as part of the analysis presented to Board, and are also aligned to the

expectations of the HCA Regulatory Framework.

Goals Measure of Success 15/16

actual 16/17

target 17/18

target 18/19

target

Products & Services

Customer Retention/Tenancy

turnover %

8.7% 8.5% 8.3% 8.1%

Advocacy Level/Net Promoter

Score

To be baselined

Overall Customer Satisfaction 91.76% 90% 92% 95%

Satisfaction with

neighbourhood

90.43% 90% 92% 95%

Satisfaction with home 91.85% 90% 92% 95%

Customer Effort Score To be baselined

Percentage of active customers

in arrears

To be baselined

Total arrears as proportion of To be baselined

31

Goals Measure of Success 15/16

actual 16/17

target 17/18

target 18/19

target

income

Income Collection rates

Void Rent Loss 1.5% 1.4% 1.3% 1.2%

Gas Safety certificates 100% 100% 100% 100%

proportion and number of

properties in class A, B and C

in order to drive correct

disposal behaviours and protect

the financial position of Plus

Dane

To be baselined

Financial Resilience

Turnover (£000)

Operating Margin (%)

Surplus (£000)

Debt per unit (£000)

Total cost per property (£)

Covenant Headroom

Operational efficiency (£000)

87,925 23% 5,768

>10%

83,907 21% 5,631

17 TBB

>10% 2,791

67,448 >25% 4,921 <25 TBB

>10% 4,951

67,103 >25% 3,755 <25 TBB

>10% 6,033

Growth New homes built 127 123 313 150

People Employee net promoter score To be baselined

% of employees who feel

Leadership Team are effective

39.8% 42% 45% 50%

% of Absence 4.53% 4% 3.75% 3.5%

L&D spend per employee £354 £360 £350 £350

% of corporate objectives

delivered

100% 100% 100%

32

7. Assurance

Business assurance is a fundamental aspect of ensuring that all stakeholders are

aware of how Plus Dane is performing against its goals. Plus Dane’s approach

ensures that Board has a holistic view of the organisation in terms of

performance, programme delivery, and risk management.

The system of internal control is designed to provide the Board with reasonable but not absolute assurance that risks are identified on a timely basis and dealt with appropriately; that assets and people are safeguarded; that proper accounting records are maintained; and that the financial information used within the business or for publication is reliable.

The organisation has a number of arrangements in place that comprise the overall internal control framework that is used to provide Board Members with assurance about the adequacy of this framework. In summary these include the following:

33

8. Strategic Risk Map

Through robust discussion, Plus Dane’s risk appetite has been reviewed and based

on an improving position over the last 18 months Board is satisfied that its attitude to

risk is now “open” in the areas of Finance, Operational Delivery and Reputation;

however in the area of compliance Plus Dane is cautious.

Risk is discussed at every Board meeting and includes a live review of the

cumulative impact of decisions made by the Board or Executive. The strategic risks

at the corporate level that may affect the development and implementation of the

business plan have been derived from the following key internal and external

influences:

The external environment is continuing to change, driven by developments

in government policy/bills that include: Cities and Local Government;

Planning and Housing; Full Employment and Benefits and Welfare Reform

and Work. The international and national landscape could also change,

with a European Union referendum taking place in June 2016 and a

potential for a second Scottish Independence vote. More recently, the

volatility of international relations has caused the business to think broadly,

with implications of associated media campaigns, and actual threats to

security considered in light of protecting the business, our staff and our

customers.

The cost of operating in our environment is changing too, with future

income, particularly of rent reductions from April 2016, the application of

the regulators Governance and Financial Viability Standards, reductions in

Supporting People funding, pension costs and potential fluctuations in

inflation rates. The Right to Buy, providing an increasing supply of homes

and exposure to the housing market, further highlights the importance of

effective treasury and cash flow management.

The strategic risks, have been identified as:

1. Board and the Leadership Team inhibit the business to achieve on-going

success

2. Inability to identify and respond to environmental change for ourselves and

stakeholders

3. Inability to appropriately defend and protect the business

4. Poor performance management of Business Plan objectives

5. Inadequate resourcing of strategy implementation to deliver products/services

to agreed standards

6. Providing products or services that do not meet the requirements of our

customers, market or support our business objectives

7. Finances are not managed in a way that secures the sustained success of the

34

business

8. Ineffective people management including the delivery of change

9. Inability to retain or attract talent at Board and staff level

10. Incorrect alignment between the businesses position in the market and the

business objectives

11. Not maximising/optimising all available income streams

12. Breaching regulation and/or legislation

13. Disjointed organisational effort due to lack of clear corporate culture across

the business

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9. Appendices

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