2014-2015

Value for Money SelfAssessment

Value for Money Self-Assessment 1

Hanover Housing Association is a leading national provider of housing and services for older people wishing to live independent, active and fulfilling lives. Our Vision: A world where homes and services offer choice and e  xcellence for all older people

Our Mission: To be a top-class p  rovider of homes and services, working in partnership to support older people in living healthy, independent and fulfilling lives

Contents 3 Hanover’s strategic aims and objectives, including VFM strategy 5 VFM regulatory requirements 5 Hanover’s governance and control environment 7 Summary performance against VFM commitments made for 2014-15 8 VFM objective: ‘To improve the affordability of our services for our current and future residents’

Our Values:

12 Our targeted aims and improvements to increase resident affordability

Honest... demonstrating openness and transparency

12 Self-assessment on our work to date to increase resident affordability

Connected... reducing barriers and helping others

13 VFM objective: ‘To generate additional financial capacity, giving us long-term financial viability and choice over the services we provide’

when dealing with others and giving timely feedback

Positive... about what we do and taking every opportunity to recognise and celebrate success

Courageous... pioneering services, always seeking to improve and take responsibility for our actions Respectful... listening and putting excellent

18 Growing the organisation 19 Efficiently managing assets, including our people 21 Controlling costs and performance for residents, benchmarking and our dashboard

customer service at the heart of everything we do

25 Creating social value

Inclusive… valuing everyone for who they are

26 Our targeted aims and improvements to generate additional financial capacity

and welcoming diversity

27 Self-assessment on our work to date to generate additional financial capacity 27 Overall self-assessment

Registered with the Mutuals Public Register of the Financial Conduct Authority under the Co-operative and Community Benefit Societies Act 2014 (Number 16324R) Registered with the Homes and Communities Agency (Number L0071) Registered with HM Revenue and Customs (Charities Division Number XN 9996) Registered Office: Hanover House, 1 Bridge Close, Staines, TW18 4TB Throughout this publication, the term ‘Hanover Group Board’ means the Board of Hanover Housing Association which as the Board of the Group parent fulfils the role of the Group Board

2 Value for Money Self-Assessment

28 Appendix A – summary assessment compared to the standard 30 Appendix B – summary of targeted aims and improvements for 2015-16 and beyond

Context for Value for Money at Hanover Hanover’s strategic aims and objectives As a specialist provider of housing for older people, we have developed properties across a wide area to meet local needs and only have a few large concentrations of properties in specific geographical locations. The age profile of our residents is very different from that of a typical general needs provider and is a strong influence on the nature of services provided and the cost base of the organisation. Our estates are age-exclusive, with the exception of a small number of individual and general needs properties intrinsically linked to age-exclusive sites. We categorise our rented housing into Retirement Housing, where we provide housing with support to older people able to live independently, and Extra Care Housing, which provides residents* with greater care and

support needs with a supported independent living environment. Our estates are relatively small, with the average Retirement Housing estate comprising 29 properties. Extra Care estates tend to be larger, typically providing 40 units of accommodation per site. The nature of our estates and the associated services we provide mean that a proportionately large percentage of our turnover (27%) comes directly from costs administered on behalf of residents (ie service charges). In comparing with other registered providers, this can distort the comparison of headline financial performance. In particular, in comparing our operating surplus ratio of 22.8%, care is required because over a quarter of our turnover comes from costs recharged to residents.

Units of accommodation, March 2015 3% Almshouse Trusts

“the nature of our estates and the associated services we provide mean that a proportionately large percentage of our turnover (27%) comes directly from costs administered on behalf of residents” To contextualise this point, the HCA’s global accounts for 2014 confirm that service charges typically represent around 9% of turnover for all other registered providers, leaving a greater proportion of turnover available from which to achieve a surplus.

Age profile of our residents, March 2015

2% Under construction 10% 26% 30%

34% 30% Leasehold and shared ownership

65% Rented

n 55 to 64 n 65 to 74

n7  5 to 84

no  ver 85

Throughout our VFM Self-Assessment reference to ‘residents’ refers to tenants and leaseholders (including freeholders) collectively.

*

Value for Money Self-Assessment 3

The Board recognises that Value for Money (‘VFM’) starts with clarity about our purpose and priorities: through being clear on what Hanover is striving to achieve, the organisation can make informed judgements over the best way to allocate resources and meaningfully measure success. At Hanover, we believe that quality housing, choice, and a supportive community are key to a good later life. Our 50-year history, expertise and track record in innovation make us a trusted housing provider, and a valuable partner, ready for the challenge of our ageing society. Our Board-approved 5-year Strategic Plan (2015-2020) recognises that Hanover will need to respond to external challenges, while staying true to its charitable aims of assisting those in necessitous circumstances.

“Value for Money starts with clarity about our purpose and priorities” Our forward direction is encapsulated in a refreshed statement of our vision and mission: nn Our vision is of a world where homes and services offer choice and excellence for all older people. nn Our mission is to be a top-class provider of homes and services, working in partnership to help older people to lead healthy, independent lives that offer choice and excellence for older people. The vision and mission are not driven and measured purely by cost of service and financial returns from property. Hanover

4 Value for Money Self-Assessment

“we believe that quality housing, choice, and a supportive community are key to a good later life”

(assessed from the bi-annual survey of tenants and leaseholders) highlight that we are operating effectively, with 93% and 80% of tenants and leaseholders respectively reporting overall satisfaction with Hanover as a landlord.

recognises that service quality and cost, together with returns from properties will be driven partly by location, scale and customer choice.

At Hanover, we are committed to sustain a VFM culture and ethos that underpins the attainment of all the strategic goals. Our VFM strategy has two overriding objectives:

Our strategic goals through to 2020 are: nn To place VFM at the heart of what we do nn To manage our assets proactively and effectively nn To ensure our service models embrace the present and the future nn To support positive health and well-being among residents nn To grow the organisation (through new development and acquisition) to meet more housing needs for older people (across England) nn To be an exemplar national housing provider with transparent and excellent governance nn To develop and implement a new office strategy to support local delivery of services nn To review and invest in the use of new technologies in all aspects of our work to help us achieve our future ambitions nn To be an employer of choice nn To be a well-run and effectively performing organisation Hanover has a strong balance sheet and the underlying core business is cash-generative. Resident satisfaction levels

1. To improve the affordability of our services for our current and future residents 2. To generate additional financial capacity, giving us long-term financial viability and choice over the services we provide These choices include: nn How we can best meet the needs of current and future residents through stock reinvestment, development and/or additional services nn How we can meet our social purpose through community investment and support and delivering services that add value to our residents This Self-Assessment sets out the progress we have made in furthering the two objectives contained within our VFM strategy. We look back to evaluate progress against the actions we committed to complete in 2014-15 and set out targeted improvements for 2015-16 and beyond.

“we are committed to sustain a VFM culture and ethos”

VFM regulatory requirements “we encourage a two-way open dialogue with all our stakeholders” Our regulator, the Homes and Communities Agency, published its standard on VFM in March 2012 and the contents of the standard underpin our work on the delivery of VFM. The standard is reproduced below to aid stakeholders in making an informed assessment of VFM at Hanover. Our VFM statement promotes accountability and we encourage challenge and suggestions for improvement. The standard requires that we: nn Have a robust approach to making decisions on the use of resources to deliver our

objectives, including an understanding of the trade-offs and opportunity costs of our decisions; nn Understand the return on our assets, and have a strategy for optimising the future return on assets – involving rigorous appraisal of all potential options for improving VFM, including the potential benefits in alternative delivery models – measured against our purpose and objectives; nn Have performance management and scrutiny functions which are effective at driving and delivering improved VFM performance; nn Understand the costs and outcomes of delivering specific services; and that we understand the underlying factors which influence these costs, and how they do so;

nn Demonstrate to stakeholders how we are meeting this standard, and as part of doing so, publish a robust selfassessment which is transparent and accessible. We encourage a two-way open dialogue with residents, employees, lenders, regulators, Local Authorities, partnering organisations and indeed all our stakeholders. If you have comments, queries, or observations that you would like to share with us, please contact Kevan Forde, Head of Service Improvement. Kevan is contactable by telephoning 07717973137, or via email: [email protected]

Hanover’s governance and control environment and how it is driving a culture of VFM VFM underpins everything that we do at Hanover. We recognise that to be truly effective in achieving and demonstrating our own definition of VFM, the principles have to become part of the culture of the organisation and it is vital that Hanover’s employees are supported in delivering this strategy. This section introduces some of the ways we are achieving this.

“in March 2015, the Board ratified a new 5-year Strategic Plan”

In March 2015, the Board ratified a new 5-year Strategic Plan, which sets out what Hanover will seek to achieve across 2015-2020. The plan focuses the Executive Leadership Team and ultimately all employees on achieving ten key strategic objectives. As a specific, yet cross-cutting

Monitoring performance and the achievement of financial targets (both historic and anticipated) is firmly established within the organisation and there is a robust reporting framework in place. Hanover’s Executive Leadership Team (ELT) is accountable to the

objective, the Board has once more taken the opportunity to reaffirm its view that ‘placing VFM at the heart of what we do’ remains central to how the organisation must operate, both now and into the future.

Board and its Committees for performance delivery, and reports combined financial and operational performance against targets on a regular basis. A monthly management ‘pack’ of performance information provides insight to aid decisionmaking at both strategic and operational level. The pack is intentionally ‘layered’ in its design to accommodate the differing needs of Board, Board sub-committees, Executive, project leads and other internal managers. We have a strong focus on forward-looking performance information and the Board receives a forecast (setting out the anticipated year-end results) three times a year.

Value for Money Self-Assessment 5

“holding ourselves accountable to the views of residents is important for so many reasons” The forecast is inclusive and budget holder-led and we have found that this approach fosters ownership and accountability of budgets, which ultimately secures better outcomes. The principles of ‘reporting up’ drive proactive management and decisionmaking – we have a culture whereby accountability and challenge are now the norm. Budget holders throughout Hanover operate within clearly defined responsibilities and receive management information that is targeted and granular. Existing systems support the review of performance at an individual estate (or department) level and this framework of reporting is a cornerstone for devolved performance and budget management. Outcomes arising from focussed management during 2014-15 include further reductions in the amount of income lost through empty properties, with void loss for 2014-15 amounting to 0.9%, down from 1.1% in 2013-14. Budget holders are required to account openly, and ‘zero base’ the constituent parts of budget proposals. The approach generates healthy debate and heightens scrutiny of expenditure throughout the organisation. Budget holders who seek discretionary funding to improve or expand services complete

6 Value for Money Self-Assessment

written business cases for ELT to evaluate. This discipline increases the transparency with which budgets are set and provides ELT with the opportunity to assess budget requests against a range of criteria, not just cost; successful business cases explain their relationship to agreed strategic priorities. Bids also set out financial costs versus anticipated benefits, business risks (including how they will be managed), alongside an assessment of the suitability of alternative solutions. Holding ourselves accountable to the views of residents is important for so many reasons, not least as engaging with residents offers a first-hand barometer for whether we are ‘getting it right’ as a specialist (Retirement Housing) landlord. Overall satisfaction levels with Hanover from both rented tenants (93%) and leaseholders (80%) remain high and every survey of residents is analysed and an action plan agreed to respond to the issues identified. We provide detailed information to residents about their estate service charge, which generates helpful scrutiny and challenge over the cost and quality of services. At annual resident meetings we encourage appropriate choices in how services are to be provided in the future. Local Estate Agreements and five-year plans for planned maintenance investment are discussed and where appropriate influenced by resident feedback. At national level, our Residents Council continues to play an important role in promoting a focus on resident affordability.

“budget holders who seek discretionary funding to improve or expand services complete written business cases”

Summary performance against the VFM commitments we made for 2014-15

1. To improve the affordability of our services for our current and future residents Category

Action

Update

Improving costs and performance for residents

Maintain service charge increases at below inflation levels

Achieved – overall service charges in 2014-15 increased by 0.8% from 2013-14 levels

Eliminate all Energy Performance Certificate (EPC) E-rated properties

Partially achieved and ongoing – as at March 2015, just 18 properties remain rated EPC ‘E’

Generate a further £1.25m in additional income for residents through our expert support and advice

Achieved – in excess of £1.5m secured for residents

Creating social value

2. To generate additional financial capacity, giving us long-term financial viability and choice over the services we provide Category

Managing our assets

Creating social value

Improving costs and performance for residents

Action

Update

Generate cash from our core operations of £4.5m

Achieved – result for 2014-15 = £5.8m

Complete Estate Business Plans for all rented estates by the end of 2015

On target and ongoing

Disposal of a further four estates

Achieved

Complete a Value for Money analysis of our total maintenance on our stock, benchmarking our costs with other organisations

Achieved and ongoing

Continue our development programme, with 67 units scheduled to complete in 2014-15

Partially achieved – the development programme has gathered pace with 363 units under construction in March 2015

Develop our approach to health and well-being and support for current and future residents as well as deepen our customer insight

Partially achieved and ongoing

Develop our approach to measuring social value

Partially achieved and ongoing

Commence work on an end-to-end efficiency review of our service delivery and supporting services

Deferred to 2015-16 and scope narrowed down to a review of our service delivery model following ELT recruitment

Complete service charge project to improve the efficiency of our systems, reduce processing costs and increase the quality of information to residents

Achieved and ongoing

Improve our use of benchmarking, including developing our VFM dashboard, leading to a better understanding of the interaction between the cost and performance of specific services

Achieved – extensive benchmarking undertaken during 2014-15 with outputs leading to targeted service reviews

Value for Money Self-Assessment 7

Assessment of progress against our first VFM objective: ‘To improve the affordability of our services for our current and future residents’ The Board has recognised that improving affordability for residents is central to Hanover’s core purpose, as well as to protect our future income. The presence of (pivotal) communal facilities on our estates, together with the range of estate-based services we provide to our residents, mean that service charges constitute a significant proportion of the total charges raised to residents. With rent charges set through adoption of government policy, Hanover has recognised the importance of working in conjunction with residents to agree service charges on each estate. Our commitment to support residents with affordability extends beyond the careful management of service charges and into creating social value: nn We have helped over 1700 residents secure £4m of additional income over the past three years via our Welfare and Benefits Advice service and our energy switching offer.

nn We have an informed strategy to maintain energy-efficient properties to a high standard. All bar 18 of our properties now have an Energy Performance Certificate rating of D or above (and our actions have driven down energy bills for residents and protected the environment in the process). nn We have built partnerships with other service providers such as the Royal Voluntary Service, the Trussell Trust and the Cinnamon Trust together with a large number of local voluntary groups to provide additional services on our estates. nn For a number of years we have provided the framework to galvanise resident groups into working together on estate-based initiatives. We have invested in our estate communities through partfunding initiatives on estates. nn ‘Greenshoots’ (Hanover’s internal grant scheme that is available to all Hanover estates) encourages resident groups to work together, become

financially independent and raise their own funds on an ongoing basis. Satisfaction with rent and service charges remains a key area that we monitor via our biennial STAR surveys of tenants and leaseholders. Statistical analysis of these surveys has revealed a strong correlation between whether residents consider their rent and service charges provide VFM and their overall satisfaction with Hanover as a landlord. This view is consistent with the feedback gathered by our Estate Managers (who have regular contact with residents) and endorses the extent to which improving affordability for residents is central to our VFM strategy.

“our commitment to support residents with affordability extends beyond the careful management of service charges”

Residents’ perspective: do we provide VFM? 100% 90%

89%

89%

n Hanover STAR survey of tenants in 2013/ leaseholders 2014

92% 83%

80%

82%

86%

n Housemark peer Group median*

70%

n Housemark peer Group upper quartile*

63%

60%

52%

50% 40%

41%

30% Rent provides VFM (only applicable to tenants)

Service Charge provides VFM – Tenants

Service Charge provides VFM – Leaseholders

Tenants benchmarked against Housemark’s Housing for Older People (HfOP) peer group 2013-14. Leaseholders benchmarked against Housemark’s Leaseholder peer group 2013-14.

*

8 Value for Money Self-Assessment

nn 89% of Hanover’s tenants feel that their rent provides VFM (2011 survey: 87%) and this places Hanover on a par with the Housemark Housing for Older People (HfOP) median. We are content with performance in this area and our strategy is to maintain our position.

in 2012. Satisfaction is significantly higher than upper quartile of the most relevant peer group available via Housemark. Despite outscoring the upper quartile, we are in no way complacent and we have set ourselves the stretching target of achieving 70% satisfaction by 2018-19.

nn 83% of our tenants consider that the service charge we manage provides VFM (2011 survey: 80%), placing us just above the Housemark benchmark median for Housing for Older People (HfOP). Similarly, we are content with performance in this area and our strategy is to maintain our position.

We recognise that difficulties of the current economic climate (for example low interest rates for savers and low inflation affecting state pension increases) are likely to continue for the foreseeable future. Factors such as cost of living increases and fuel poverty also put pressure on older people who are frequently disproportionately affected. Improving affordability for our residents therefore remains an absolute priority.

nn 63% of Hanover’s leaseholders are satisfied that service charges provide VFM an improvement from 61%

Service Charges - year on year expenditure, all services

£m

23

1.0% 0.8%

22

0.5%

21 20

0.3% All services

2014-15 cost

0.0%

2013-14 cost

The cost of service charges has continued to be well managed, with the overall year-on-year increase (coming into 2014-15) limited to 0.8%. This is against a context of RPI inflation, as at

£m

1.5% 1.3%

10% 8% 6%

5

1.8%

24

The graphs below compare service charge expenditure incurred on behalf of residents during the financial year ending March 2015, with the same for the previous financial year.

6

2%

25

Service charge expenditure One of our stated aims was to maintain service charge increases at below inflation levels. Service charges on Hanover estates contain the cost of a range of different services, including the on-site Estate Manager, utilities, cleaning, gardening and maintenance/ upkeep of communal areas. For Extra Care residents, catering is also a significant service.

7

2.3%

26

In last year’s VFM Self-Assessment, we set out a number of actions we would take to increase resident affordability.

Service Charges - year on year

2.5%

27

How we have increased resident affordability through our work in 2014-15

4%

4

2%

3

0% -2%

2

-4%

1 0

-6% Estate Manager pay and related

Utilities

General site upkeep inc. cleaning and gardening

n % Increase (decrease) year on year

September 2014, of 2.3%. The result this year builds on a prior year increase of 2.1% (ie the rate at which costs increased coming into 2013-14), which was also below the prevailing rate of inflation

Catering

Repairs to communal areas, equipment and other

-8%

RPI inflation % – September 2014

(September 2013 RPI, 3.2%). Our performance figures take account of changes to the average number of properties managed from year to year.

Value for Money Self-Assessment 9

Energy efficent homes During 2014-15, we have secured healthy reductions to the cost of utilities through taking a much more proactive approach with our broker and through ongoing investment in LED lighting. This has offset the above inflation cost increases to repairs to communal areas and equipment, including the maintenance of lifts, telecare systems, security and fire prevention equipment. Looking to the future, we acknowledge that the cost of the Estate Manager service will increase in 2015-16 as a result of a cost of living pay increase. We continue to work with residents to review the specifications for services such as cleaning and grounds maintenance. This approach is increasingly moving to longerterm contracts covering more than one estate to offer improved Value for Money.

Our desire to provide energy efficient homes is driving us towards eliminating all Energy Performance Certificate (EPC) E-rated properties. We are also two years into a 7-year programme to fit LED lighting in the communal areas and this will continue throughout 2015-16. On average, this will save residents 16% on communal electricity charges. In April 2014, we had 116 rented properties that held an ‘E’ grade EPC, representing approximately 1% of our owned and rented accommodation. During 2014-15, we have undertaken a focussed programme of improving the ‘fabric’ of these properties. We have changed the heating systems from electricity to gas on 24 estates utilising £400,000 of grant funding to contribute towards the cost and a series of other actions have been targeted at E-rated homes, including

external insulation and the supply of low energy light bulbs. At the end of March 2015, we hadn’t quite upgraded all the E-rated homes, and 18 properties will be improved during 2015-16 as further energy switching is completed. For the residents of the 98 homes we have taken out of the E-rating, energy switching has led to a per property annual saving of between £225 and £500 per annum. Our attention is now turning to identifying viable investment in the D-rated homes.

EPC profile of rented stock as at March 2015

80%

68%

70% 60%

% of stock

50% 40% 30% 20%

22% 10%

10%

0.1%

0% B

C

D EPC rating

10 Value for Money Self-Assessment

E

Service charge project Our service charge project continues to deliver improvements and efficiencies. The ultimate aim of this project is to improve the efficiency of our service charge systems, reduce processing costs and increase the quality of information to residents.

“we will ensure continuous improvement in what is a key aspect of our service offer to residents” nn During 2014-15, major system changes have been implemented to support improvements and, through clarifying responsibilities, we are now focussed on improving the quality of the information provided to residents. nn A formal process of monitoring service charge costs at specific review points throughout the financial year has been introduced to reduce the volume of transactions requiring adjustment at yearend – ultimately leading to an improved focus on managing residents’ money.

nn It is anticipated that year-end accounts will be available to all residents much earlier than the distribution dates achieved in prior years. Achieving a smoother audit of mixed tenure and leaseholder estate accounts delivers tangible benefits to leaseholders in the form of a reduced audit fee. Improvements made to date already account for a decrease in the total annual charge from £53k to £49k despite Hanover acting as managing agent for a further 400 leasehold properties. nn Our systems now support the provision of budget and year-end reports with two levels of detail: a consolidated report for the majority of residents, who want a simple overview of the cost of services, and an alternative offering expense code-level detail that can be given to those who request it. The service charge project continues into 2015-16 and we will ensure continuous improvement in what is a key aspect of our service offer to residents.

Supporting residents with maximising their income

We work hard to secure additional income for residents and proactively offer support and advice. Our Estate Managers and Payment Advice Team help residents to claim appropriate benefits, challenge overpayment requests and deal with housing benefit queries as part of their daily roles. As part of our ‘Be Wise’ initiative to provide services to residents that truly add value, our Financial Rights team provides specialist welfare benefits advice and an energy switching service. Through experience, we recognise that being proactive is vital in encouraging our residents to engage in reviewing their benefit entitlement. By holding events on estates to explain help available, and offering individual and confidential advice and specific telephone helplines, we have tapped into further potential entitlement, which may otherwise have been missed. We set ourselves a Be Wise challenge for 2014-15 to generate £1.25m in additional income (ie new money) for our residents. We have exceeded this by generating £1.54m - the most we have ever generated in a year. Hanover is committed to play a part in supporting residents with the challenges imposed by the financial environment. The fantastic result in 2014-15 builds on income of £1.1m and £1.4m we helped secure in 2012-13 and 2013-14 respectively.

New money secured for residents each year 1.6 1.5 £m (new money each year)

Additional income for residents

1.4 1.3

“we have tapped into further potential entitlement, which may otherwise have been missed”

1.2 1.1 1.0 2012-13

2013-14

2014-15

Value for Money Self-Assessment 11

Improving the affordability of our services for our current and future residents: our targeted aims and improvements for the future

Area

Objective for 2015-16 Sustain the position whereby: nn 89% of tenants consider their rent provides VFM (next measured in 2015-16)

Improving performance for residents

nn 83% of tenants consider their service charge provides VFM (next measured in 2015-16) Achieve and then sustain the position whereby: nn 70% of leaseholders consider their service charge provides VFM by 2018-19 (next measured in 2016-17)

Resident affordability/social value

Manage service charge increases (both resident-funded and housing benefit-eligible) within RPI inflation

Resident affordability/social value

Generate in excess of £1m of additional income for residents through financial rights advice (this target is lower than recent performance and takes account of our achievements with existing residents)

Resident affordability/social value

Generate in excess of £40k of savings in energy costs for residents as a result of the energy advice service

Resident affordability/social value

Improve 10% of our D-rated properties to a minimum C-rating

Hanover’s self-assessment on our work to date to improve resident affordability We recognise that most of our residents are and will be on relatively low and fixed incomes. Our aim is to protect those residents from unforeseen and surprise cost changes and/or poor delivery of service. We aim to ensure that the services we provide are Value for Money in terms of the cost of input and the outcomes achieved. When we look back over the past year, we can trace a clear track record of delivery in regard to the objective of improving resident affordability. Not only has Hanover kept its direct cost base under

12 Value for Money Self-Assessment

close control; it has continued to challenge the cost input from suppliers, and demanded constant and/or improved service delivery. Resident satisfaction levels from consistent surveys support this view. At the same time, Hanover recognises that the market place is changing. Our customers are living longer and generally demanding more services and support. In addition, demographic trends are clear that the population of England is facing a significantly increasing age group of over 65’s. With this in mind, during the 2015-16 financial year, Hanover will be undertaking substantive scoping work in regard to service

delivery model options, the use of technology via a technology roadmap, and reviewing its office numbers and locations via an office strategy, all with the aim of creating a future-proofed organisation that takes account of the predicted future. The outputs of this work should have a profound and long-term impact on how Hanover operates and ensures affordability both to current and future residents across the diverse geographical portfolio we manage. VFM will start to be assessed against this change programme in future years.

Assessment of progress against our second VFM objective: ‘To generate additional financial capacity, giving us long-term financial viability and choice over the services we provide’ As a reminder, these choices will include: nn How we can best meet the needs of current and future residents through stock reinvestment, development and/or additional services nn How we can meet our social purpose through community investment and support and delivering services that add value to our residents

Hanover’s approach to generating additional capacity, leading to long-term financial viability and choices To ensure we achieve balanced and sustainable improvements to services, we continue to monitor a number of key financial measures. Our 2014-15 financial performance, in context of our budgets or targets, is set out below.

“fi nancial performance during 2014-15 remained strong with all bar one of the above measures achieving, or overachieving, the target”

Measure

Why we monitor it

Operating surplus %

To monitor returns from in-year operating activities

22.8%

To ensure the core business ‘washes its face’ financially - ie we don’t borrow money to fund running costs. Positive cash flow generates financial capacity

£5.8m

Free cash flow*

Free cash flow before expenditure on planned works

Financial return on assets (cash generated from core business divided by assets deployed)

Available loan facilities as a percentage of all arranged borrowings

To identify the underlying level of efficiency of core operations (ie excluding fluctuations in the amount spent on planned property maintenance )

To assess cash generation in context of assets used by the core business

2014-15 result

£28.1m

Performance in context 2014-15 Budget: 22% 2014-15 Budget: £4.7m (long-term Board target: £5m) 2014-15 Budget: £30.3m 2013-14 Result: £24.9m

2.2%

2014-15 Budget: 1.3% 2013-14 Result: 0.4%

To provide sound liquidity management in a manner consistent with the long-term Group Business Plan

18%

The Board requires 10% of our total loan book to remain undrawn at all times

Achived/ Not Achived

n

Achieved

n

Achieved

n

Not achieved

n

Achieved

n

Achieved

n

Achieved

n

Achieved

Continued... Free cash flow is an internal measure of core business cash generation. The measure includes operating activity, net interest payments and investment in existing stock and other fixed assets. It excludes depreciation, new development expenditure and net proceeds from trading sales and asset disposals.

*

Value for Money Self-Assessment 13

Measure

Why we monitor it

Interest cover

To identify how many times the interest bill can be paid (lender covenant)

Gearing

Void loss (as % of income susceptible to voids)

Current rent and service charge arrears %

2014-15 result 261%

Identifies degree to which the organisation is funded by debt or equity (lender covenant)

62%

To track rent lost from properties available to let

0.9%

To indicate the amount of money owed from current residents / the ability of residents to pay

Financial performance during 2014-15 remained strong with all bar one of the above measures achieving, or overachieving, the target. Operating costs in 2014-15, excluding the amount invested in planned property maintenance, decreased by £1.1m (1.3%) from the amount spent a year ago – demonstrating our commitment

1.4%

to control costs and drive value. Lower operating costs have been achieved through reducing the amount spent on management overheads and projects. The Board upholds the fundamental importance of existing assets generating a positive financial return. At an organisational level, our return

Performance in context

Achived/ Not Achived

Lenders require 110% cover as a minimum

Achieved

n

2014-15 Budget: 1.1%

Achieved

2013-14 Result: £1.1%

Achieved

2014/15 Budget: 1.1%

Achieved

2013-14 Result: £1.1%

Achieved

1.4% (opening arrears at 1 April 2014)

n n n n n

Achieved

on assets is measured by comparing operating surplus to total assets less current liabilities. Since 2012-13, we have invested in more land, and have also invested in pre-development costs ahead of properties coming into management. This planned investment has suppressed our financial return on assets.

Business Plan 2015-16

2014-15

2013-14

2012-13

2011-12

Operating surplus (£m)

20.3

23.1

18.6

19

21

Total assets less current liabilities (£m)

420

401

378

332

315

4.8%

5.8%

4.9%

5.7%

6.7%

Financial return on assets (%)

14 Value for Money Self-Assessment

Cash flow return on assets (returns reported after the cost of servicing debt) 1.8% 1.6%

6

1.4%

5

£m

Described within Hanover as ‘free cash flow’ and defined as the cash generated from core operations, the Board has set a rolling target for the core business to generate £5m each year. Cash generated from disposing assets is excluded and this approach ensures that existing operations ‘wash their face’ in financial terms – and crucially that there is no requirement to borrow to fund existing operations. We segregate our assets to identify returns, both with and without those assets being constructed. Cash generated from the core business is used to support the development of new homes and to safeguard our financial viability into the longer term.

7

1.2%

4

1.0%

3

0.8% 0.6%

2

0.4%

1

0.2%

0

0.0%

2012-13

2013-14

2014-15

Return on assets %

“there is no requirement to borrow to fund existing operations”

2015-16 Budget

Board long-term target (£m)

Return on all assets %

Cash generated from core business (£m)

 eturn on assets excluding R WIP development %

The balance of Hanover’s investment in new development, in comparison to grant, has accelerated in recent years:

Source of funding in new homes 2012-13

2013-14

2014-15 1.2 2.0

7.6

7.8 3.9 13.3

nG  rant funding for new homes (£m) nH  anover’s (self-funded) investment in new homes (£m)

Value for Money Self-Assessment 15

The financial contribution made by each estate (contribution to overheads, interest and ultimately surplus)

is measured and monitored as part of our monthly management accounts. Contribution is assessed against budget and

managers account for movements against budget when variances materialise.

In-year financial contribution per £1 of rent, by geographic location

Retirement Housing – West

Retirement Housing – London and Thames

Retirement Housing – South

Retirement Housing – North

Retirement Housing – East

Extra Care - West

Extra Care - South

Extra Care - North

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percentage of stock contribution

n Negative

n 0 to 20p

n 21 to 40p

n 41 to 60p

n6  1 to 80p

n More than 80p

Financial contribution is not a measure of profitability. A positive contribution from housing assets is required to fund operating costs, overheads and interest.

16 Value for Money Self-Assessment

Hanover has 15 estates where financial contribution was negative in 2014-15 (ie the direct running costs of the estate were higher than income generated by the estate). Reasons behind this and contributing factors are understood by management. It is also important to note that

incidents of significant expenditure within the year can have a significant impact on the ranking. For this reason, we monitor contribution from estates over a number of years to give a clearer, unequivocal view of underlying performance.

Rent £000’s Reference

3 year total

Cumulative results over three financial years reveal nine estates requiring internal subsidy. A management comment has been included in relation to each site within the table below.

Contribution £000’s 2014-15

2013-14

2012-13

3 year total

Management comment

1

333

95

(138)

(648)

(691)

Planned modernisations

2

529

98

(314)

(292)

(508)

Planned modernisations

3

384

(46)

(348)

67

(327)

Planned modernisations

4

28

(3)

(156)

(153)

Options appraisal stage

5

887

(106)

(72)

(58)

Planned modernisations

6

41

(21)

(9)

(6)

(36)

Options appraisal stage

7

379

49

78

(153)

(25)

Planned modernisations

8

271

(90)

80

-

(10)

Recently acquired stock with a long-term view

9

57

(18)

4

11

(4)

Closely monitoring financial performance provides an insight into returns generated from each estate whilst breeding a culture of control and sound financial management. Forward-looking information remains more relevant for appraising the future value of an estate and we prepare net present value (NPV) financial appraisals to inform Estate Business Plans.

120

6

As with most registered providers, the majority of our income comes from rents set in line with government policy. Our ability to create additional capacity focuses our attention on strategies to: nn Grow the organisation through developing or acquiring new properties,

Exceptional costs incurred 2014-15

divest of assets in order to deliver our strategy effectively) nn Control costs, including reviewing our processes and service models and operating structure  

nn Effectively manage our assets (including whether to retain or

Value for Money Self-Assessment 17

Growing the organisation The latest Group Business Plan, approved by the Board in March 2015, anticipates a six-year timeline to develop 1,311 new properties. Hanover uses a Group structure to carry out development in the most taxefficient manner and during 2014-15 Hanover Housing Developments Limited (the development subsidiary of the Group) became fully operational. During the early part of 2015-16 Hanover Housing Limited (HHL) will commence trade in the form of the Group’s design and build subsidiary, a move that will save upwards of £0.5m over the course of the next 5-6 years. Our existing development strategy reduces public subsidy through innovative development. We are focussing on developing mixed tenure sites, with sales revenues effectively providing a form of financial cross-subsidy in lieu of grant. All new developments will meet the Code for Sustainable Homes (CSH) Level 3, using a Fabric First approach. Of the 1,311 properties to be developed by the Group, 521 will come from sites that are within existing ownership and, at the end of March 2015, on-site construction had started to deliver 363. In last year’s VFM Self-Assessment we noted an expectation of completing 67 properties during the year to March 2015 and this target has not been met due to a combination of delays with securing planning and site flooding at our development in Egham. All 67 units are expected to complete during the summer of 2015.

18 Value for Money Self-Assessment

One of the sites currently under construction is a substantial development at St Luke’s, Muswell Hill containing 161 units (35 for rent, 113 for outright sale and 13 for shared ownership). This project represents the largest project of its kind to Hanover, with total sales revenue anticipated in excess of £100m. During 2014-15 Hanover’s Board decided to pursue a strategy to share the risks and rewards and in March 2015, Hanover Housing Development Limited signed a 50:50 joint venture agreement with the award-winning house builder Hill Residential. Work started on site in the same month and will continue through to late 2017. The decision to form a joint venture partnership with Hill Residential secured a number of benefits to Hanover, not least gaining direct access to Hill’s supply chain and its sales and marketing experience of schemes of this nature and size. Although Hanover will now receive a lower absolute profit than originally thought due to the creation of the joint venture, it has also decreased the cash investment required by Hanover to complete the scheme and thereby reduced the overall risk to the organisation.

“the decision to form a joint venture partnership with Hill Residential secured a number of benefits to Hanover”

Effectively managing our assets, including our people “factors such as demand and the needs of the local community are central to informing our approach” Hanover has a well-established approach to managing assets, including how we decide to improve, maintain or dispose of properties. In 2012, our Board made the decision to increase levels of planned investment in stock to ensure estates remain attractive and fit for purpose (over 75% of which was built in the 1970’s and 1980’s). This has naturally resulted in lower financial returns in the short term. Factors such as demand and the needs of the local community are central to informing our approach. These factors can, in certain circumstances, outweigh financial returns from the properties themselves. We operate a balanced approach - the principal parts of our methodology are as follows: Estate classification Hanover operates a system of asset management classification. All rented estates are assessed against a range of criteria, including current and anticipated financial performance, value to the community and demand in relation to the local market. This leads to an overall classification for each estate. A small number are classified as being of concern and these will be modernised, re-developed or sold.

Estate Business Plans During 2013, we introduced estate business planning to give a local focus to our investment and service delivery on individual estates. This work entails an appraisal on both social and economic grounds and brings in the current and anticipated future needs of local residents. One of the promises we made in last year’s VFM Self-Assessment was to complete Estate Business Plans for all rented estates by the end of 2015. We have completed Estate Business Plans for 225 of our estates (approximately half way towards this objective) and we remain on course to achieve our aim. As a direct result of Estate Business Plans, we have changed the planned investment on individual estates to reflect the needs of the estate. We have reviewed the way that we provide services on estates to increase resident satisfaction and we have completed or started options appraisals on 19 estates to agree the most appropriate approach to future investment. Estate Business Plans are making an effective impact at the local level and our next step is to ensure we use this analysis to inform our overarching strategy for asset management and service delivery. This comprehensive approach makes us responsive to local issues whilst also informing strategic planning. During 2015-16, we will develop and adopt a new asset management strategy that will contribute to the organisation’s 5-year Strategic Plan.

In line with the commitment set out in last year’s VFM SelfAssessment, during 2014-15 we disposed of four estates. These estates no longer met the quality standards that Hanover aims to provide and, following detailed options appraisals, we concluded that they were not viable for reinvestment. The disposals achieved a surplus of £1.5m from sales proceeds of £2.4m. Completing disposals allows Hanover to invest the surplus generated in developing new homes or improving existing homes in a manner that is consistent with our aims. The Board decides how the reinvestment is made and approves plans as part of the annual budget and business planning cycle.

“we have changed the planned investment on individual estates to reflect the needs of the estate”

Option appraisals Led by the findings from Estate Business Plans, options appraisals are undertaken on a relatively small number of estates to ascertain their long-term future, ie their strategic fit.

Value for Money Self-Assessment 19

Making the best use of our people Our employees represent the heartbeat of the organisation: we employ 768 full time equivalent (FTE) employees, around half of whom are Estate Managers. We have an annual salary bill of just over £24m, representing around a quarter of our turnover and through realising the potential of individuals, we will be best-placed to realise the potential of the organisation.

At 84%, overall satisfaction rates with Hanover as an employer are excellent.

“through realising the potential of individuals, we will be best-placed to realise the potential of the organisation”

Creating the right environment in which people are supported and encouraged to thrive in their roles is essential to deliver our strategy. We are committed to undertake surveys of our employees at regular intervals in the future.

Employee satisfaction with Hanover over time and benchmarked

During 2014-15, we have: nn Established a new Executive Leadership Team (ELT) to equip us with the expertise we need to drive the organisation forward

Hanover 2013 Hanover 2011

nn Advanced the change management skillset of our Senior Leadership Team (SLT) in readiness to deliver our new strategy

Hanover 2009

Lower quartile Median Upper quartile 0%

20%

40%

60%

80%

100%

nn Revitalised our approach to buying goods and services by strengthening our approach to working with suppliers, including contract management

Housemark benchmarking with 20 similar sized landlords, 2013-14

Satisfaction with Estate Manager service over time

Our focus on creating the right environment for our employees has helped to: nn Retain our accreditation as a gold standard Investors in People (IiP) employer nn Save over 300 working days through reducing sickness levels down from 6.8 days per FTE in 2013-14 to 6.4 days in 2014-15 nn Save in excess of £50k worth of recruitment and training costs as a result of lowering the number of leavers from 160 (2013-14) to 129 (2014-15) More fundamentally, our healthy employee environment has translated into front line services that are highly valued by residents. As a core service offer to residents, we frequently monitor whether our residents are satisfied with this service.

20 Value for Money Self-Assessment

2013 tenant survey

2011 tenant survey

2014 leaseholder survey

2012 leaseholder survey

80%

82%

84%

86%

88%

90%

Controlling costs and performance for residents “we now have more insightful benchmarking, which has led to a better understanding of the interaction between the cost and performance of specific services” A great deal of work has been completed during 2014-15 to step up our understanding of how our costs and performance levels compare to similar landlords. We now have more insightful benchmarking, which has led to a better understanding of the interaction between the cost and performance of specific services. This was a specific commitment we made in last year’s SelfAssessment.

Our position as a national provider of specialist retirement housing and related services creates a challenge in identifying a single peer group from which we can draw meaningful insight. This consideration, together with the fact that just under a third of our accommodation is managed on behalf of leaseholders, led us to conclude that ‘a one size fits all’ peer group was not going to be suitable, instead a mixed approach was deemed to be the most useful and relevant. nn A peer group of 20 similarsized organisations were selected as part of our (Housemark) cost and performance benchmarking submission for 2013-14. By virtue of the size of the organisations selected (ie managing between 10,000 and 20,000 properties), this peer group proved particularly

useful in comparing the cost of repairs and maintenance, major and cyclical works, overheads, and elements of housing management. nn As members of Housemark, we are able to draw upon the STAR benchmarking report (April 2015) for useful performance and satisfaction comparisons with other specialised providers of Housing for Older People (HfOP). The same report isolated leaseholder satisfaction ratings, against which comparisons have been drawn. It is acknowledged that this group is not specific to older people. At the time of writing, benchmarking cost and performance data in relation to the year ending March 2015 was unavailable and data refers to the year ending March 2014.

The outputs: our dashboard

Poor performance High cost

1 6

Key

Good performance High cost

5 Poor performance Low cost

2

4

1

Major and cyclical works

2

Responsive repairs and void works

3

Rent arrears and collection

4

Overheads

5

Lettings

6

Resident engagement

Good performance Low cost

Cost

3 Performance

Value for Money Self-Assessment 21

Cost Measurement Ref.

Basis

Benchmark

Basis

Benchmark

1

Major and cyclical works

Total CPP* £2,003 Housemark peer group lower quartile £1,682

Overall satisfaction with repairs and maintenance 89% Housemark median HfOP 89%

2

Responsive repairs and void works

Total CPP* £824 Housemark peer group median £839

Overall satisfaction with repairs and maintenance 89% Housemark median HfOP 89%

3

Rent arrears and collection

Total CPP* £49 Housemark peer group upper quartile £74

Rent arrears 1.4% Housemark peer group median 5.35% (not HfOP)

Overheads

Overheads represent 10.84% adjusted turnover Housemark peer group upper quartile 10.56%

93% of tenants satisfied with landlord Housemark upper quartile HfOP 94%

5

Lettings

Letting CPP* £47 Housemark peer group median £47

Void loss from empty properties 1.1% in 2013-4 (down to 0.9% in 2014-15) Housemark peer group median 1.02%

6

Resident engagement

CPP* £76 Housemark peer group lower quartile £59

75% of tenants satisfied with engagement Housemark median HfOP 75%

4

*

Workstream

Performance Measurement

Cost per property

Key

l lower quartile l median and lower quartile l median

l median to upper quartile l upper quartile

“for our benchmarking to be useful, we recognise that the hard work starts, rather than stops, once the dust settles on the data”

Our 2014-15 performance and cost matrix will be uploaded to our website: hanover.org.uk as soon as validated benchmarking data becomes available. For our benchmarking to be useful, we recognise that the hard work starts, rather than stops, once the dust settles on the data. At the same time, to create meaningful outcomes, understanding factors beyond a single cost and performance measure - notably our organisational strategy - are essential to ensure we operate intelligent benchmarking. We are committed to ensure that any changes are sustainable and bring about positive impacts on services to residents.

Service provision, cost per property

Major works and cyclical repairs

Void works

Responsive repairs

0

500

1000

1500

n Median benchmark (£CPP) n Hanover (£CPP)

22 Value for Money Self-Assessment

2000

Investment in existing stock 35 30 25

£m

20 15 10 5 0 2010-11

nP  lanned maintenance

2011-12

nV  oid repairs

1 Major and cyclical works and 2 responsive repairs and void works Our investment into existing stock is comparatively high when pitched against our benchmark peer group. The Housemark approach to benchmarking repairs costs identifies three parts to costs: service provision (ie the amount we spend on the work itself), direct management time associated with delivering these services, and finally, a share of organisational overheads are added in. In understanding the direct, controllable costs associated with our repairs service, we focussed our understanding on the cost of the work (ie the cost of service provision), together with the direct cost of managing our repairs functions. The decision taken by our Board in 2012 to invest in our stock – to improve overall condition, energy efficiency and future-proof income – has knowingly taken our investment significantly higher than the Housemark median. Whilst our approach to invest heavily in our stock is intended, more work will be undertaken in 2015-16 to evaluate our model

2012-13

2013-14

2014-15

nR  esponsive repairs

for managing the delivery of major works programmes. More broadly, the work completed during 2014-15 will inform the development of a new asset management strategy. This work will involve analysing the financial and non-financial performance of our stock, revisiting our approach to options appraisals, verifying our stock condition data and maximising the benefits of our approach to delivering day-to-day repairs. 3 Rent arrears and collection Rent arrears remain wellmanaged in Hanover and performance levels have remained strong and on an improving trend (2012-13: 1.5%, 2013-14: 1.4% and 2014-15: 1.37%). We view the allocation of resources as proportionate to the outcomes achieved. 4 Overheads At 10.84% of adjusted turnover, the percentage of adjusted turnover invested in overheads falls between the upper quartile and the median. Getting the right value from the amount spent on overheads remains an ongoing part of our approach to managing the organisation and during 201516 we have committed to develop a new office and IT strategy.

5 Lettings Through focussed management effort, our lettings performance has improved in 2014-15 with rent loss from void properties down to 0.9% (2013-14: 1.1% and 2012-13: 1.2%). As a stand-alone measure, current performance would place Hanover between the median and upper quartile – a result made all the more impressive when our organisation’s tenancy turnover rate of 14% (peer group median: 9%) is taken into account. 6 Resident engagement Our costs are notably higher than the benchmarked peer group and 75% of residents are satisfied with how we consult and engage. This partly reflects the methods needed to engage our client group of older residents. The extent to which we listen effectively and respond to feedback is one of the key drivers for overall tenant and leaseholder satisfaction. Statistical analysis of resident responses to our STAR survey (bi-annual survey of tenants and residents) revealed the strands of service that our residents view to be the most powerful in securing overall satisfaction with us as a landlord.

Value for Money Self-Assessment 23

In each case, the charts below show overall satisfaction, followed by the key drivers to overall satisfaction in order of importance. Satisfaction scores for each of the drivers are also provided. Key drivers for tenant satisfaction* Hanover survey of tenants in 2013 (STAR) Housemark quartile Housemark Housing for Older People median

100% 95%

94% 93% 92%

90%

96% 95%

93%

94%

89%

95% 93% 92%

92% 86%

89%

80% 80%

81%

75% 70%

82%

83%

75% Tenant overall (1) Overall (2) Listening satisfaction repairs and to views with Hanover maintainence and acting service on them

(3) Overall quality of home

(4) Rent provides VFM

(5) Service (6) Overall charge neighbourprovides VFM hood as a place to live

Top 6 drivers for overall tenant satisfaction *

Based on analysis of responses provided to Hanover’s tenant survey in 2013

Satisfaction with the overall service provided by the Estate Manager (89%) ranked as the 5th most powerful driver of tenant satisfaction and, despite an absence of benchmarking data, remains a priority area for Hanover.

Key drivers for leaseholder satisfactionˆ H  anover survey of leaseholders in 2014 (STAR)  Housemark leaseholder upper quartile  Housemark leaseholder median

100% 97%

90% 80%

80% 70% 60%

72%

70%

63%

61% 55% 53%

50% 40%

46%

44% Leaseholder overall satisfaction with Hanover

80% 75% 63% 52% 41%

(1) Listening to views and acting on them

(2) Overall repairs (3) Service charge and maintainence provides VFM service

(4) Overall neighbourhood as a place to live

Top 4 drivers for overall leaseholder satisfaction

ˆBased on analysis of responses provided to Hanover’s leaseholder survey in 2014

Combining the conclusions drawn from analysing the feedback from tenants and leaseholders has highlighted a gap in our approach to resident engagement. As a response, we are going to complete a comprehensive consultation with residents, employees and partner organisations during 2014-15 to inform the development of our new resident engagement strategy.

24 Value for Money Self-Assessment

Procurement savings We have implemented new procurement procedures during 2014-15 that govern how we go about buying goods and services. These new procedures are wideranging and include a requirement for our employees to obtain multiple quotes, or partake in a tendering process, depending on the cost of the item. Adherence to our new procedures is monitored by our Procurement team and through specific internal audits;

nonetheless, we recognise that our devolved business model will require steadfast and focussed management to transform how we buy things across the whole organisation.

Pr ot of ect p u in g rc va h a lu s in e g at t de h cis e h io e a ns r t

Our approach proportionately manages risk and – through challenging and comparing suppliers on everything we buy costing more than £1,000 – we now systematically protect value as a matter of operational routine.

More than £10k

During the year, a number of quantifiable savings have been realised on the back of the formal tendering, the benefits of which resulted in lower resident charges, or increased resources for direct services to residents. In total 27 contracts were re-tendered during 2014-15, returning cashable savings (compared to budget, or previous contract values) of £275k.

3 quotes via our e-tender portal (unless EU Regulations apply)

£1k to £10k

3 quotes

Less than £1k

1 quote

Creating social value As a registered provider, formed for the benefit of the many communities in which we operate, we aim to create social value for our stakeholders. The efficiency with which we run the organisation enables us to invest in services that go beyond those traditionally associated with a registered provider. The provision or management of accommodation at below market rents to in excess of 13,000 tenants is a fundamental part of our social offer. Beyond this, we have a rich history of investing time and resources into supporting community projects and initiatives that create social value in the form of valued outcomes: nn By 2021, we will provide an additional 1,311 new homes for our target market at a total

cost of in excess of £290m. Construction is underway for 363 properties and land has been acquired for a further 158. nn Over the past three years, we have supported residents with securing over £4m of additional income, helping in excess of 1,700 residents in the process. nn We lever in resources from voluntary organisations, such as the Royal Voluntary Service and the Cinnamon Trust together with a large number of local voluntary groups. Voluntary services instigate a wide range of positives for residents and this work often involves the provision of transport, social activities and more generally establishing links with local people. Simply forming friendships can prove to be a real lifeline for many residents.

“by 2021, we will provide an additional 1300 new homes” nn For a number of years we have part-funded community initiatives on estates. ‘Greenshoots’ is Hanover’s internal grant scheme that encourages resident groups to work together on a project to enhance local estates. Over the past three years, we have invested £168,000 in 164 resident-led community projects. nn Our properties have an average Standard Assessment Procedure (SAP) rating of 73.0, underpinning our stance on our responsibilities to the environment.

Value for Money Self-Assessment 25

“over the past three years, we have invested £168,000 in 164 resident-led community projects” In pursuit of a methodology to calculate social returns we carried out an internal project to identify all the different (social-enhancing) activities that are popular with residents. Named the ‘Enrichment Challenge’, this proved invaluable in celebrating our achievements and sharing good practice with staff. However, it has proved challenging to settle on a useful, overarching method to calculate our social return, partly because of our geographical spread and also the nature of the specialised services that we provide. To the extent that it will aid our allocation of resources, we will do more in

2015-16 to establish a methodology for measuring our social returns on investment (SROI). As part of the development of this approach we are participating in a project co-ordinated by the Housing Associations’ Charitable Trust (HACT) to commission further work on establishing the link between well-being and satisfaction levels to supplement and possibly replace the STAR methodology. This will allow a deeper understanding and measurement of what is really important to residents in terms of the added value our services offer. One of the commitments we made in last year’s VFM SelfAssessment was to develop our approach to health and wellbeing. We set ourselves this objective because we want to deepen our customer insight in relation to current and future

residents. Work we have completed included: nn Commissioning qualitative research by Ipsos MORI to understand residents’ views of the most important factors in maintaining good well-being and how Hanover can contribute to improving well-being. nn Completing an audience insight study relating to our downsizer product, the results of which have aided our understanding the expectations of potential customers. These studies have informed discussions at the Residents’ Council and Board, which together with analysis of the external environment and further resident engagement, will provide the basis for the development of a well-being strategy during 2015-16.

Generating additional financial capacity: Our targeted aims and improvements for the future Area

Objective for 2015-16

Improving costs and performance for residents

Generate cash from our core operations of £5.2m

Improving costs and performance for residents

Establish the use of a design and build subsidiary in the form of Hanover Housing Limited (HHL)

Improving costs and performance for residents

Commence a review of our service delivery model

Improving costs and performance for residents

Commence a review of how we use technology to reflect changing resident needs and preferences

Managing our assets

Take opportunity presented by lease break clauses to review our office strategy

Managing our assets

Complete 5 strategic asset disposals, generating a surplus of £1.5m

Managing our assets

Develop and commence implementation of a new asset management strategy with a 3-year target to reduce our unit spend on component replacement whilst maintaining quality. This target will be more specific after the asset management strategy has been finalised

Managing our assets

Complete Estate Business Plans for all rented estates

Managing our assets

Develop and commence implementation of a portfolio management approach for managing projects and organisational change

Managing our assets

Reduce the number of homes that are unavailable to let by 20%

Creating social value

Complete development of an additional 77 affordable properties

Creating social value

Conclude our approach to recording/measuring social value

26 Value for Money Self-Assessment

Appraisal of our position in relation to this objective Generating additional financial capacity, giving us long-term financial viability and choice over the services we provide, is no easy short-term objective to achieve. It is something that must be constantly worked at. Looking back over last year (and further back), Hanover has demonstrated both clarity in how it is attempting to achieve this objective and solid progress in measuring the achievement of that objective. Hanover remains in solid financial health and this will allow it to continue to generate financial capacity over the medium to long term. The Board is very clear that the organisation needs to make a certain level of operating surplus and free cash from its social purpose organisation and that this part of the organisation does not cross-subsidise any commercial activities.

Hanover has clear and strict policies and procedures in regard to the cycle of property investment, maintenance and divestment. This is demonstrated through the programme of reviews that highlight financially under-performing assets: if they cannot be supported by a clear social purpose, this will lead to a disposal and recycling of monies generated into better-performing assets that meet both market and resident demands. Hanover acknowledges that its programme of building for third party sale and using those profits to cross-subsidise affordable units has taken more time than originally planned to reach the current stage. This is driven by the difficulties of obtaining the relevant planning consents, a lesson that has been learnt. However, as previously acknowledged we currently

have 363 units under construction and have created a joint venture to mitigate various risks on the most material project at St Luke’s. With this in mind, during the 201516 financial year, Hanover will be undertaking substantive scoping work in regard to an asset management strategy, with the aim of creating a future-proofed organisation that takes account of the predicted future in regard to an ageing population as previously noted. The outputs of this work should have a profound and long-term impact on Hanover’s asset base as it strives to ensure that current property is maintained to an appropriate VFM standard but develops new ways of allowing an ageing population to live independently for as long they desire.

Overall Self-Assessment For the reasons stated in the table within Appendix A and the evidence provided throughout this Self-Assessment, we believe that Hanover complies with the HCA’s VFM standard. VFM is a fundamental concept and as the priorities of current and future residents change (and those of other key stakeholders), it is imperative that Hanover remains agile and flexible to the best way of procuring and providing services. We recognise that the increase in the ageing population in England will have a material negative impact on an affordable homes provider such as Hanover if we do not plan accordingly.

remains appropriate to a more sophisticated resident customer base nn Service delivery model strategy - Ensure that the services and support demands made by our customers can be matched at a supportable cost nn Technology roadmap strategy - Ensure that technology is used both to lower cost of service delivery but also very importantly does not exclude older people from engaging in an ever-increasingly digitalised world to which future residents will have had considerable exposure

As noted previously, during the financial year 2015-16 Hanover will be undertaking several pieces of scoping work:

nn Office strategy - Ensure we take advantage of upcoming lease breaks to ensure that resources are adequately placed in England to deliver on VFM services

Asset management strategy Ensure our homes portfolio

nn Well-being strategy - Ensure that at the centre of what we

do remains the principal of helping current and future residents with their well-being, so they can live dignified and independent lives for as long as they deem appropriate; and at the same time assist the public purse by doing so. The purpose of this work is to form plans that will future-proof the organisation by being executed materially in the period 2016 to 2020. This will mean investments and costs being incurred in this period with an increasing benefit flowing therefrom in the latter part of this programme and beyond. A revised VFM strategy will be developed that encapsulates this scope of work before project execution begins so that as an organisation we can demonstrate how VFM will be achieved in a clear and concise manner.

Value for Money Self-Assessment 27

Appendix A – Summarised assessment against the HCA standard HCA Requirement

How Hanover demonstrates compliance

(a) have a robust approach to making decisions on the use of resources to deliver the provider’s objectives, including an understanding of the trade-offs and opportunity costs of its decisions

nn There is a clearly articulated strategy and corporate priorities nn Monitoring is in place for predetermined KPI’s, both financial and non-financial nn An annual budget cycle with zero base principles is operated and business case forms are used for securing discretionary funding (business cases include an assessment of risks, consequences of inaction and alternative solutions) nn Individual Estate Business Plans take account of local needs, leading to more effective investments/use of resources nn When it comes to investing in stock, new or existing, there are specific appraisal tools, including net present value modelling tools and Board-approved development appraisal criteria. Results are monitored against stated aims

(b) understand the return on its assets, and have a strategy for optimising the future returns on assets – involving rigorous appraisal of all potential options for improving Value for Money including the potential benefits in alternative delivery models – measured against the organisation’s purpose and objectives

nn There is documented methodology for targeting and monitoring returns at an estate and organisation level nn Detailed stock condition survey information is held, aiding the publication of planned works over a 5-year period for each estate and evaluation of future financial returns from assets nn All estates are categorised based on financial returns and social benefit. Local Estate Business Plans ensure investment takes account of local needs and options appraisals are carried out where there are more fundamental questions over the future of estates nn The Association has 9 estates that did not cover their running costs over a 3-year period and these are well understood (5 modernisations with long-term futures, 2 sites undergoing options appraisals, 1 recent (gifted) acquisition where initial investment is required and 1 site where one-off exceptional costs were incurred) nn 4 estate disposals were completed in 2014-15 as a result of previous option appraisals

(c) have performance management and scrutiny functions which are effective at driving and delivering improved Value for Money performance

nn Annual meetings to review and agree local services on estates place appropriate choices with residents nn Historic and forward-looking financial and operating performance is reported regularly to the Board and its Committees nn Forecasting, detailed short-term and longer-term via the Business Plan. Forecasts are budget holder-led to aid ownership and accountability nn A detailed management ‘pack’ of performance information is prepared each month and ELT undertakes a monthly review of financial and operating performance. The ‘pack’ is available to all employees to raise the profile of performance nn Finance Business Partners support and provide challenge to budget holders in ‘critical friend’ roles.

(d) understand the costs and outcomes of delivering specific services and which underlying factors influence these costs and how they do so

nn The Self-Assessment reports costs against performance outcomes in the form of a benchmarking matrix, with supporting analysis and actions that follow nn Detailed cost benchmarking, by service type, is carried out each year. Comparing costs with the feedback gathered from our bi-annual resident satisfaction STAR surveys has led to targeted service reviews – in particular, resident engagement and asset management nn Statistical analysis of resident satisfaction has provided further insight to the individual factors that drive overall satisfaction

28 Value for Money Self-Assessment

The Assessment shall: (a) enable stakeholders to understand the return on assets measured against the organisation’s objectives

nn The Association has a Board-led target of achieving £5m of ‘free cash flow’ from its core business each year. This target has been exceeded in 2014-15 by £1m nn An operating surplus of 23% has been achieved in 2014-15, 1% higher than budget nn The rationale for the 9 estates that produced abnormally low financial returns over the past 3 years has been documented

(b) set out the absolute and comparative costs of delivering specific services

nn The cost of 6 key services (including major and cyclical works, letting, overheads and responsive and void repairs) is set out as part of benchmarking cost and performance against similar organisations

(c) evidence the Value for Money gains that have been and will be made and how these have and will be realised over time

nn Operating costs in 2014-15, excluding the amount invested in planned property maintenance, decreased by £1.5m (2.1%) from the amount spent a year ago nn Procurement-related contractual savings of £275k have been secured on the back of re-tendered contracts in 2014-15 nn The organisation is committed to develop new homes and returns from the core business are used to support the cost of doing so

Value for Money Self-Assessment 29

Appendix B – Summary of our VFM commitments for 2015-16  1. To improve the affordability of our services for our current and future residents Category

Action Sustain: 89% of tenants satisfied that rent provides VFM

Improving costs and performance for residents

Sustain: 83% of tenants satisfied that service charges provide VFM Achieve by 2018-19 and then sustain: 70% of leaseholders consider service charge provides VFM Manage service charge increases (both resident and housing benefit funded) within RPI inflation

Resident affordability

Generate in excess of 1m of additional income for residents through financial rights advice Generate in excess of £40k of savings in energy costs for residents as a result of our energy advice service

2. To generate additional financial capacity, giving us long-term financial viability and choice over the services we provide Category

Action Complete Estate Business Plans for all rented estates Develop and commence implementation of a new asset management strategy with a 3-year target to reduce our unit costs whilst maintaining quality

Managing our assets

Develop and commence implementation of a portfolio management approach for managing projects and change Reduce the number of homes unavailable to let by 20% (from 1.01% to 0.8%) Take opportunity presented by lease break clauses to review our office strategy Complete 5 strategic asset disposals, generating a surplus of £1.5m

Creating social value

Complete development of an additional 77 affordable properties Conclude our approach to recording/measuring social value Generate cash from our core operations of £5.2m

Improving costs and performance for residents

Establish the use of a design and build subsidiary to reduce the cost of developing new homes Commence a review of our service delivery model Review how we use technology and plan investment in line with the changing needs of residents

30 Value for Money Self-Assessment

Our offices Hanover House 1 Bridge Close Staines TW18 4TB

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