Value for Money

In 2014, we refreshed our approach to value for money with a comprehensive self-assessment that set out our strategic objectives, delivery plans and priorities for the future. This has formed the basis of our revised Value for Money Strategy. The Strategy can be found on the Peabody website, and will be reviewed each year as part of our annual business planning process. Our strategy is a Group-wide approach that sets the framework for our subsidiaries, who also report separately against each of the chosen value for money benchmarks. This self-assessment covers both the Peabody Group (for corporate and Group-wide functions), and, where appropriate, also reports specifically on Peabody’s performance as a landlord. Subsidiary reports for CBHA and Gallions can be found at www.peabody.org.uk. 1

Value for Money

What we have achieved in 2014-15

Providing social and affordable rented homes is at the heart of our business model. In 2014-15 the Peabody Group built 426 new social and affordable rented homes for the people of London. As housing need in London increases, we also continue to help working Londoners in other ways, for example through shared ownership and homes for rent to key workers. In 2014-15 we built 139 new shared ownership homes. We also invest in our properties for the long-term. In 2014-15 we invested £30m in existing properties through our Quality Homes programme.

Our value for money goals in 2014-15 – The implementation of a new procurement framework that embeds and promotes our value for money principles in the way we buy goods and manage contracts. – Maximising opportunities for future efficiencies arising from Gallions joining the Peabody Group. – Ensuring our ambitious programme of development and regeneration delivers optimal Return on Investment. – Protecting and optimising our income to secure our long-term financial health.

Peabody Avenue, Westminster

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Value for Money

– Our forecast for net Return on What we achieved Investment for the development – The new procurement framework programme indicates that we will has been implemented. Significant meet our target of 6% for the strategic sourcing activity is current programme. underway in the major spend areas of Development, Property – Our target for rent collection of Services and Corporate Services 99% has been exceeded. Sales with the expectation that major revenues have been strong due to procurement related benefits will high property prices, although we start to flow through in 2015-16. have completed fewer properties overall than originally planned. – The integration of Gallions into the Peabody Group is now complete. The expected Net Present Value (NPV) is £16.6 million, higher than the original business case NPV of £15.9 million.

426 New social and affordable homes built by the Peabody Group in 2014-15

Outdoor improvements at our Islington estate

Silchester development, Kensington and Chelsea

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Value for Money

The work of our Business Excellence Team The Business Excellence Team was formed in 2013 to be a centre of excellence for Peabody business improvement. In 2014-15, Business Excellence led a programme of work to ensure that our growing pipeline of new homes could be successfully delivered and handed over to new residents. Our systems and processes needed to be reviewed and updated to manage the increase in new homes. We estimate the work of the New Homes Customer Care Team has delivered around £300,000 of benefits in the first year. Benefits come from improving and streamlining processes right across Peabody, eliminating delays and making sure that our ways of working are efficient and effective. Value for money and Digital We continue to develop our digital communications and services, in order to provide more choice and control to our customers and to maximise opportunities for efficiency in the way we work. Using online procurement, we have saved around £10,000 in staff time, and avoided printing around £54,000 pages of documentation. The online process is easier for potential suppliers and staff to use Sustainability In 2014-15 Peabody invested £220k in an in-house sustainability team which delivers value for money through: Economy Our Home Energy Advice Service, we identified savings for our tenants in the range of £40,000 - £60,000 from making simple behavioural changes, changing tariffs and using heating programmers more effectively. Our 9000 solar panels generate an income to Peabody of over £500,000 per year, which pays for their installation and helps control service charges on our estates. Energy efficiency works such as insulation and double glazing through Quality Homes reduce energy bills for residents, and water saving devices such as low flow taps and low flush toilets reduce water bills for those on a metered supply.

Efficiency We work with local authorities to improve recycling facilities on estates. In the last year this has increased overall recycling for the boroughs, which brings down costs to the local authority and reduces our own spend on hiring general waste bins. Through our partnership with Thames Water, they have installed £60,000 of meters to our estates, at no cost to Peabody, to identify sources of major leaks to improve the supply and efficiency of the water network and prevent damage to our buildings. Effectiveness Our research work with the Energy Technologies Institute in retrofitting older homes with new energy-saving technology is identifying how ready our supply chain is for this kind of work. We are contributing new knowledge to the housing sector in preparing for the challenge of eliminating fuel poverty and reducing housing-related carbon emissions by improving home energy efficiency. Along with Lakehouse and other industry partners we formed ASSURE to bid on funding for market transformation and demonstration construction and retrofit projects, and to encourage closer working with one of our main framework contractors. We have successfully secured EU funding to test surveying methods for energy efficiency works. Social and community impact This year we have published our first Community Impact Report, setting out what we have achieved through our programme of community investment and support. The Community Impact Report is available in full at www.peabody.org.uk. In 2014-15 we invested £4 million, of which £3 million came from Peabody’s own funds and £1 million from external fundraising. With this investment we have: – Helped 525 people into jobs or apprenticeships. – Overseen the activities of over 500 volunteers – the hours put in equating to £1.1m (at London Living Wage levels). – Visited over 1,700 residents aged over 75 to ensure that they have adequate heating provision, and made referrals when support needs have been identified. – Supported over 200 young people to receive nationally recognised accredited awards. – Supported over 30 young people living on the Pembury estate in Hackney to make the transition into employment, education or training. – Helped over 10,000 Londoners to improve their healthy eating, mental and physical wellbeing through our Activate programme.

Topping out at Devon’s Road, Tower Hamlets

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Value for Money

Looking ahead – VfM in 2015/16

Improving our operating margin Our operating margin is a key measure of how effective we are compared with our peers. We want to ensure that we are at least as efficient as the G15 average, and we have therefore set a target to improve our operating margin by around 1% each year over the next three years. To support this work, a Business Review programme has been started. We will review all areas of the Peabody Group to look at how we can get more effective at what we do, and reduce costs wherever possible. The Business Review will examine: – The activities, outputs and outcomes of each service area; – The resources required to deliver, both this year and in future years; – How we ensure that our resources and efforts are fully focused on delivery of our business plan; – Whether there is scope for more effective and efficient working, with options for change. This might include: changes to team boundaries or ways of working; ensuring we capture savings resulting from projects already underway; additional revenue generation; scope for insourcing or outsourcing of work. Measuring success We have chosen to focus on improving our operating margin rather than setting a specific savings target in advance. This is because we believe that our operating margin is a better measure of our performance in running the business and does not constrain our ability to make sensible choices to invest where this will lead to better delivery.

Key VfM priorities for 2015-16 Through the Business Review, deliver appropriate ongoing efficiency savings and set out a routemap to improve our operating margin by one per cent each year over the next three years Undertake a thorough review of our repairs performance and put in place an action plan that will deliver improved performance Review our voids performance and achieve a re-let time of no more than 26 days in 2015-16 Benchmark our development programme against robust industry standards and put in place a programme of cost control and efficiency savings from 2016

However, we know that improving our operating margin will involve making efficiency savings. As a rough guide, each 1% improvement in our operating margin will require around £2 million of efficiency savings or increased revenue. So far, the Business Review has identified around £2m of annual savings.

Launch of our Peabody Sales website for our sales and marketing division

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Value for Money

Our value for money indicators – performance in 2014-15

We have chosen a set of value for money indicators that show how we are performing over time and in comparison to similar organisations. We choose to benchmark against the ‘G15’, London’s 15 largest housing associations. Return on investment is measured on a basis that is appropriate to the type and purpose of the investment. Types of investments include investment in new and existing homes, in people and in systems. Return on investment in properties is measured by tenure type as a function of the operating surplus returned against capital deployed as outlined in the table below. Returns are broadly in line with 2014 with a marginal increase on return in rented housing and shared ownership rentals and a more significant increase in the return on commercial properties. The return on commercial properties is a result of improved market conditions in the letting of light industrial properties held by Tilfen Land Ltd and operational efficiencies across the group portfolio of commercial properties. Market rent properties generate a net return of 7.7% in line with that achieved by market yields but reflecting deterioration from the prior year as rental yields have not matched an increase in the market value of capital deployed. On-going review of the operational performance of all property tenures is central to the Group’s Asset Management Strategy and work continues to ensure the optimum delivery of front line services is supported by appropriate capital investment.

Rosendale Road, Lambeth

Return on capital employed by the main business Group Rented housing Shared ownership Market renting Commercial properties

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Value for Money

2015 2015 2015 2014 Operating surplus Capital deployed Return Return £’000 £’000 39,092 989,511 4.0% 3.2% 1,994 44,372 4.5% 3.8% 3,707 47,883 7.7% 9.6% 7,733 70,180 11.0% 7.3%

Group value for money performance

We regularly monitor our customer satisfaction, using an independent external agency. Peabody residents continue to think rents and service charges provide value for money; our performance in this area remains in the top quartile of the G15. As pressures on affordability in London increase, we know that providing goodquality homes at low rents makes a substantial contribution to our mission to make London a city of opportunity for all. Customer satisfaction in some other benchmark areas is lower than we would like. We understand the importance of a high-quality repairs and maintenance service to our residents and this is one of the main influences on residents’ satisfaction with overall service, and on satisfaction with handling of complaints. The proportion of residents satisfied with the way we dealt with repairs and maintenance decreased by 2% compared with last year. We are committed to ensuring that the repairs service meets our residents’ expectations, and to reflect this commitment our 2015-19 business plan includes as a critical priority the objective to deliver a high-quality repairs service, and our repairs improvement project will explore the factors driving underperformance and help us to develop a cross-organisational action plan that tackles the root causes. In turn, this should improve overall satisfaction and have a positive impact on complaints.

A new set of bungalows, converted from an old drying room and workshops at Hammersmith estate

2014-15 has been a year of change for the Peabody Group as we have continued to invest and grow. In particular, we have invested around £30m extra in our asset management and pre-planned maintenance programmes, feeding through into a higher maintenance cost per property. We have also invested resource in a programme to ensure the way we manage our growing pipeline of new homes delivers excellent customer service (the ‘New Homes Customer Care Programme’), and we are undertaking a comprehensive restructure of our IT services, bringing work in-house that was previously delivered by consultants. As our development programme has grown, and we have added new homes to our portfolio, we have also strengthened the associated finance and delivery teams. We believe these are necessary investments to underpin our growing organisation. It is noted that the unit cost of delivering services shown for 2013/14 and 2014/15 are not directly comparable. This is because 2013/14 only included three months of Gallions’ operations compared to a full year of operations in 2014/15.

Value for money measure Group 2014/15 Benchmark 2013/14 2012/13 2014 (G15) Operating margin 28% 31% 30% 34% Operating margin on social housing letting 25% 33% 28% 33%

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Value for Money

Unit cost of delivering services 2014/15 Operating cost per social home, including capitalised repairs £5,429 Maintenance cost per social home £3, 634 Management cost per social home £1,687

Benchmark 2014 2013/14 2012/13 (G15) £3,276 – £6,341 £932 – £2,801 £491 – £1,855

£5,409 £2,123 £1,229

£5,249 £2,507 £1,509

Corporate costs Chief Executive pay per home

£8.79 n/a £8.41 £9.93

Customer satisfaction with group performance 2014/15 Satisfaction that rent provides VfM 79% Satisfaction with repairs and maintenance 70% Satisfaction that service charges provide VfM 73% Overall satisfaction with service (general needs) 72%

1st quartile 2013/14 2012/13 benchmark 2014 (G15) 77% 79% 78% 74% 72% 82% 64% 71% 73% 77% 74% 75%

Peabody as a landlord In addition to monitoring Group performance, we also look at Peabody’s performance as a landlord separately from our subsidiary organisations. Results are shown in the tables below. Customer satisfaction measure Peabody only 2014/15 1st quartile 2013/14 2012/13 benchmark 2014 (G15) Satisfaction that rent provides VfM 77% 77% 80% 78% Satisfaction with repairs and maintenance 65% 74% 71% 70% Satisfaction that service charges provide VfM 73% 64% 72% 73% Overall satisfaction with service (general needs) 67% 77% 76% 75%

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Value for Money

Like many Housing Associations, our revenues are under pressure from reductions in welfare benefits and from low wage inflation in the wider economy. We have a comprehensive programme of advice and support for our residents to help with budgeting and benefit entitlement. We will review our approach to rent collection and arrears management to ensure that our processes are effective and efficient, and we are communicating effectively with our residents to ensure prompt payment.

Management of social housing Peabody only 2014/15 1st quartile 2013/14 2012/13 benchmark 2014 (G15) Current rent arrears 5.4% 3.7% 4.7% 5.4% Bad debts (% of social housing income) 1% n/a 0.5% 0.7% Time taken to re-let social properties (days) 29 25 25 33 Homes meeting Decent Homes 99.6% 100% 100% 100% Complaints resolved at Stage 1 80% n/a 86% 81%

Residents at a fun day on our Pembury estate

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Value for Money