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2021-03-31-accounts

Annual Report and Financial Statements Year ended 31 March 2021

Private company limited by guarantee Company number: 10704997

Registered Charity Charity Registration number: 1177565

mhs homes limited

Report and Financial Statements for the year ended 31 March 2021

Page: Contents

4 mhs at a glance 7 Strategic Report including Environmental impact Financial Review Treasury Review Future Planning Risk Management

1

Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Chair’s Introduction to the Trustees Report for the year ended 31 March 2021

The last year has been an unprecedented one in all our lives and equally so at MHS Homes Group. I, with the Board and management team are indebted and amazed at the continued response of our teams, for their never questioning "Can Do Attitude" in supporting the whole business and those that we are here to serve. Equally I cannot forget our partners and stakeholders for the ongoing trust and faith that they have placed with us during these uncertain times, Thank You All.

The support we have received has enabled our services to continue to both our customers and to the wider community. The MHS Team's positive approach was exemplified across the organisation with our frontline teams keeping essential services going and our office-based staff switching seamlessly to remote working. We offered support to over 1,000 vulnerable tenants . Our partnership with Age UK Medway aided us in delivering over 12,000 hot meals/snack packs across the community and we delivered emergency food parcels for Medway Council and collected donations from supermarkets for Medway Food Bank. We had to adapt and think differently about how we provided our services. It was heartening that our approach was rewarded by the retention of our Customer Service Excellence accreditation with such innovations as a live video streaming service for repairs and inspections being noted. Our desire to make use of modern technology and supply a service to meet today’s digital expectations was confirmed by being ranked 15[th] in the top digital housing providers.

We kept focused on our ultimate ambition of helping to end the housing crisis in North Kent, investing over £40 million in new properties , with 151 new affordable homes completed, of which 129 were for rent. However, investment in new properties is never at the expense of our current stock, with £16 million spent on repairing and improving existing homes . But as we build new and improve our existing properties we must, and do, consider the impact on the environment. Going forward all our schemes will be built to Energy Performance Certificate (EPC) level B and we aim to have two thirds our current stock at EPC level C by 2024.

This year marks the end of our Strategic Plan for 2018 to 2021 . Some notable successes during this period includes building 523 new homes and improving our firsttime fix rate so now we regularly complete 9 out of 10 of every repair at the first time . However, our turnaround time on empty properties must improve and rent arrears are too high, even allowing for the economic impact of COVID-19. Our new Strategic Plan for 2021 – 2024 challenges us to improve in these areas, looks to invest £120 million in over 600 new properties and places Building Safety, the Environment, and Customers at the heart of our decision making.

I would like to highlight again our thanks to our customers, partners, and colleagues for all that has been achieved over this difficult last year, and I’m especially grateful to our frontline team members for their fortitude during the last twelve months. We continue to be a financially strong, ambitious, and innovative organisation. Our core ethos is that "Safe, Affordable Housing Changes Lives" and this simple but powerful message drives us forward.

Richard Cooper Chair 22 July 2021 The Report of the Board of Trustees is set out on pages 23 to 36

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Impact of COVID-19

The impact of COVID -19 across the country has been difficult for many and therefore as a social housing provider and charity we have attempted to provide support to our customers, and the wider community. For example, colleagues provided regular contact with older and vulnerable people to ensure they had access to food and medicines. We also quickly adapted our working practices to ensure that we could provide a COVID -19 secure service to our customers whilst ensuring that the homes themselves stayed safe.

We worked closely with our customers as the economic impact of the pandemic became apparent. The fallout is apparent as the number of customers claiming Universal Credit increased by almost a half to over 2,000. At the end of the year almost 10% of our customers on Universal Credit were receiving tenancy support, with over half seeing an improvement in their rent arrears.

At times during the year, depending on government advice, only essential repairs were undertaken, and we prioritised our repairs service to emergency, urgent and necessary appointments, based on customer vulnerability or potential for disrepair of the property. This did mean that a backlog of routine repairs had built up by the year end, but these were all cleared by mid may. There were 38 gas safety certificates outstanding at the year end, a much higher number than normal, however all of these were either within the legal processes or the properties were shortly to become empty. At the time of writing this report the number outstanding had been reduced to nil.

The only area of major works on properties that was delayed by restrictions during the year was installation of new kitchen and bathrooms. We are planning to restart this service in the early part of 2021/22, as soon as we can supply this service in a safe and secure manner. As this service is supplied by in house staff, these teams were re-deployed to other repair work. The work that was planned to take place in 2020/21 has been factored into our budget for 2021/22.

At the onset of the pandemic our business plans were de-risked by reducing our development aspirations. However, over the course of the year they were gradually increased. There was an impact on our build programme to begin with, with 6 extensions of time requested, ranging from 1 week to 3 months, though many of the delays were able to be accommodated within the contract longstop dates. There was little impact on the scheme finances. Sales income on shared ownership schemes sales has been delayed on some of these sites but again the impact has been minimal. Sales demand stayed strong, and at the year-end there only 2 completed properties unsold, though both were sold in April.

At the time of writing we can be optimistic there is hope that the impact of COVID-19 is reducing as the vaccine programme is rolled out. The year has been difficult for all, but we emerge as a more agile organisation and as financially strong now as we were at the beginning.

3

Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report At a glance

mhs homes limited (“mhs homes”) is a registered charity with the objectives to provide social housing in Kent and all services linked to this provision. It is the parent body of mhs homes group ( “the Group” ). We reinvest all our surpluses into building more new homes, existing properties and supporting local communities. mhs homes continues to be the only housing association of size not to be a registered provider and, although we comply with the ethos and aims of the social housing sector, our status allows us control of our own destiny and objectives . We value our relationships with the regulated sector and mhs homes generally follows the guidance of the Regulator of Social Housing in areas such as service to customers, quality of homes and effective corporate governance.

Heart of Medway Housing Association is a subsidiary of mhs homes and is registered with the Regulator of Social Housing.

We own and manage 9,380 homes, mainly in Medway, but with an increasing number in Maidstone. Most of our properties are social rented homes, though we also provide shared ownership and market rented homes. mhs homes owns the majority of our properties, 8,572 homes: with a further 802 in Heart of Medway and 6 in Lord Kitchener Memorial Homes Trust.

----- Start of picture text -----
A summary of the year
Be a great Meet the Financially
landlord housing crisis strong and lean
locally
Customer satisfaction A turnover of £60
259 starts on sites
of 65% million
16,266 repairs
completed in the year 565 homes in the An interest cover of
of which 88% development pipeline 2.5
completed first time
£16 million invested in A net increase on
£41 million invested in
repairing and borrowings of £1
new properties
improving our homes million
60% of customers 151 new homes A surplus of £21
digitally connected completed million
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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report At a glance

Our ultimate ambition is to help end the housing crisis in North Kent by providing safe and sustainable homes.

Our Purpose: We have defined our purpose according to why we exist and what we do.

What we do isn’t complex, but it does have a massive impact on the wellbeing and life chances of our customers. As a leading housing charity, we have a responsibility to use our resources effectively to tackle the housing crisis, help those in housing need and provide safe and sustainable homes. Our ultimate ambition is underpinned by our belief that decent housing should be a basic human right.

Why: Because everyone should have a decent home.

Our CREATES values underpin our purpose

C ommunity: We are community focused and are driven by a clear social purpose.

R espect : We respect the diversity of our customers and one another, we know this diversity brings creative advantage and innovation and we won’t tolerate any form of discrimination.

E xcellence : With a can-do attitude, we strive for service excellence and to be the best in everything we do.

A gility : We’re agile and light on our feet. Our success depends on the ability to respond quickly and effectively to new challenges and opportunities.

T eamwork : We succeed together as one team. We all take responsibility for contributing to team #mhs.

E njoyment: We enjoy what we do, we enjoy helping our customers whilst we have a serious job to do but don’t need to take ourselves too seriously.

S ustainability: We make sure that what we do has a positive impact on environmental, social and economic sustainability .

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report At a glance

Our areas of operation

We are close to London, in the Thames Estuary - an area of exciting growth and regeneration. The High Speed 1 Rail network has made London readily accessible, and this will further improve with the planned Lower Thames Crossing. Our strategy is to operate in a focused geographic area: this allows us to be a visible partner making a real difference at a local level. We are committed to delivering high quality services in a cost effective way – our costs per unit is one of the lowest in the sector. The majority of our properties are in Medway with growing numbers in Maidstone and Dartford.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Financial Review

Summary of results

As a charity we have a responsibility to use our resources effectively so we can help those in housing need and provide a safe, secure, affordable home. The financial results for the year highlight the financial strength of the Group with a surplus before tax and fair value adjustments of £16.4 million (2020: £14.4 million). This in turn allowed over £40 million to be invested in new homes, resulting in 151 new homes being brought into management and over 600 anticipated to complete over the next three years.

Turnover

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£'million
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Overall turnover fell in the year because of reduced sales activity on first tranche shared ownership though rental income from the core business continued to increase. During the year we sold 26 new shared ownership properties compared to 130 in the year before. This was a planned reduction as sales demand remained strong with only 2 units remaining unsold at the year end, though both were reserved by prospective buyers and sold in April.

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80 Sale of shared ownership Rental Income
70
60
50
40
30
20
10
2017 2018 2019 2020 2021
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Operating surplus by activity

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30
£'million
25
20
15
10
5
0
2017 2018 2019 2020 2021
Market rent and other non charitable activities
Property Sales
Social Housing Activities
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The operating surplus increased, despite a reduction in shared ownership and right to buy sales, as there was a fall in major repairs due to the replacement programme on kitchen and bathrooms being scaled back due to the pandemic. Routine repairs continued as before with an investment in our properties of £11.4 million (2020: £11.1 million) as we continued to maintain our properties through the year.

There was approximately £0.4 million of major repair spend budgeted to take place that was carried over into the following financial year. However, this expenditure can be contained within the agreed 2021/22 budgets .

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Financial Review

Movement from Year to Year: the movement in surplus from last year to the current is shown below

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£’ million
Increased Income from charitable activities 2.3
Reduction in major repairs 2.5
Increases in depreciation & impairment (0.5)
Other increases in operating costs (0.8)
Increased Surplus from social housing lettings 3.5
Reduction is Surplus from first tranche shared ownership sales (1.6)
Reduction in surplus from sale of other fixed assets (0.3)
Increased surplus from non-charitable activities 0.3
Increase in Operating Surplus 1.9
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Increase in income from staircasing

----- Start of picture text -----
1,800 £'000
1,600
1,400
1,200
1,000
800
600
400
200
000
2017 2018 2019 2020 2021
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The level of staircasing stayed consistent during the year and though we do not take this into account in our long term financial planning this is becoming a valuable source of income for the Group as our portfolio of shared ownership properties increases.

Interest payable

Interest payable costs are staying level as we continue to benefit from low interest rates that reduce our interest costs as a % of our debt. This has enabled the ratio of surpluses (excluding sale of existing properties and first tranche shared ownership) to interest costs (“interest cover”) to stay consistently above two even as our debt increases.

----- Start of picture text -----
3.0 14,000
Gross Interest Costs adding back capatilsed interest
2.5 Interest Cover 12,000
10,000
2.0
8,000
1.5
6,000
1.0
4,000
0.5 2,000
- 0
2017 2018 2019 2020 2021
Interst Cover
Gross Interest excl Capatilsed interest
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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Financial Review

Average interest costs 5.0% The average cost of borrowing continues to fall. 4.0% 3.0% 2015 2016 2017 2018 2019 2020 2021

Investment Properties

Over the years the Group has built up an investment portfolio of 368 properties rented to tenants at market rent. These are a valuable investment and produce a return to our original cost of 3.3% (2020: 3.0%). During the year house prices increased in both Medway and Maidstone and this is reflected in the increase in “fair value” of the investment. The Group has invested £46 million in these properties, which are now estimated to be worth £79 million. These properties are held as a long term investment so that the annual surpluses from the rental stream can be invested into charitable activities rather than for capital gain.

Rent arrears

As more customers move onto universal credit our rent arrears (measured as a 13 week average to take into account housing benefit and monthly direct debit payments) continues to increase. The number of customers on universal credit now stands at 2,115, an increase of over 700 during the year. We continue to work with our customers to manage the transition onto benefits, with now almost one third of universal claimants on alternative payment arrangements

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Rent Arrears as at 31st March
5%
5%
4%
4%
3%
3%
2%
2017 2018 2019 2020 2021
13 Week average arrears
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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Financial Review

The Groupheadline results are summarised below. The Groupheadline results are summarised below. The Groupheadline results are summarised below.
Year Ending 31 March 2017 2018 2019 2020 2021
**£’m ** **£’m ** **£’m ** **£’m ** **£’m **
Excluding 1st tranche shared ownership sales
Turnover 49 50 54 55 57
Expenditure 25 27 28 32 31
Surplus on rents 24 23 26 23 26
1st tranche shared ownership sales
Turnover 7 3 7 13 3
Cost of sales 6 2 6 11 2
Surplus on 1st tranche 1 1 1 2 1
Disposal of assets 1 - 1 1 1
Operating surplus 26 24 28 26 28
Net interest cost 10 13 11 12 11
Surplus
for
the
year
before tax and fair value		 16 11 17 14 17
Fixed assets less
revaluation reserve		 211 233 256 285 316
Investments 59 70 74 72 79
Net current assets 3 1 14 39 24
273 304 344 396 418
Social housing grant* 27 27 29 31 33
Creditors:>than one year 201 215 239 278 279
Pension liability 11 11 8 11 10
Deferred tax provision 37 - - - -
276 253 276 320 322
Total reserves –
excluding SHG*		 (3) 51 68 76 98
Key Ratios 2017 2018 2019 2020 2021
Voids: net rental income 0.4% 0.7% 0.6% 0.8% 0.9%
Bad Debt: net rental
income		 0.7% 0.9% 0.6% 0.8% 1.1%
Financial Performance
EBITDA-MRI*: Turnover 46% 49% 45% 40% 50%
EBITDA-MRI*: Turnover
excluding shared
ownership		 50% 51% 48% 46% 51%
Ratio of Debt: EBITDA-
MRI*		 8.2 8.1 8.6 8.5 8.6
Ratio of EBITDA-MRI*:
Interest Payable		 2.5 2.4** 2.5 2.3 2.5

EBITDA-MRI = Earnings before interest, depreciation and amortisation excluding major repairs * exclude breakage costs

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Environmental and Social Impact

Impact on the environment

Around 30% of all CO2 emissions in the UK are from heating homes. The Net Zero 2050 target that the UK has adopted cannot therefore be met without significantly improving the energy efficiency of housing. Over half of our stock has a SAP rating of C or above compared to 40% across all homes. We continue to invest to increase energy efficiency, with, for example, £1.6 million spent during the year upgrading boilers. Of the new properties that came into management during the year 90% were SAP rating B. Page 14 outlines our ambitious targets to reduce our environmental impact.

Affordability of our properties

As a charitable social housing provider, we must ensure that our properties are affordable whilst we have sufficient resources to invest in both existing and new properties. We therefore monitor our rents closely against both private rents and local housing allowance (LHA) as summarised in our two main area of operation below. Our rents tend to be higher in Maidstone as the majority of properties are built under the affordable homes programme rather than social rent.

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Medway Maidstone
90.00% 90.00%
80.00% 80.00%
70.00% 70.00%
60.00% 60.00%
50.00% 50.00%
40.00% 40.00%
1 Bed 2 Bed 3 Bed 4 Bed 1 Bed 2 Bed 3 Bed 4 Bed
Medway % of Private Rent Maidstone % of Private Rent
Medway % of LHA Maidstone % of LHA
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Over the year there was a significant increase in the number of customers claiming Universal Credit (UC) to 2,115 (2020: 1,408). This represents 25% (2020:17%) of our customers. Use of Alternative Payment Arrangement (APA) continues to increase, with the percentage of customers on APA’s increasing from 17% to 27% of UC claimants. At the end of March almost 10% of our customers on UC were receiving tenancy support, with over half seeing an improvement in their rent arrears.

Working with Customers

Customer Liaison Officers work with and support customers with the most complex needs and over the year we completed 502 cases of which we:

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Treasury Review

As at 31 March 2021 the Group

£286 million

During the year the following activity took place:

Interest rates fixed

----- Start of picture text -----
£118 Policy and Strategy
Fixed for 10 or more years
Million reviewed and approved by the
Board. The Group
Fixed for 5 - 10 years £56 Million Committee monitors
activities and
£41 recommendations to the Board. A
Fixed for up to 5 years
Million key risk is our exposure to interest
rate, which is mitigated by having
Floating rate £61 only £61 million (22%) of debt
Million
floating for less than one year. This
0 50 100 150 compares to £60 million (20%) last
year.
Repayment profile
120
Another key area
monitored is the 100
repayment profile of 80
the Group with 13%
(2020:18%) due for 60
repayment in the next 40
five years.
20
0
Within 1 Within 2- 5 Within 6 - 10 Within 10 to More than
year years years 20 years 20 years
£' million
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The Group is fully funded for the next four years.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Future Planning

The Group recently approved a new three years strategic plan, which includes expenditure on new properties of £120 million, delivering over 600 homes. This represents an increase on the reduced development aspirations that were put in place at the beginning of the pandemic, as the economic impact was less than that anticipated. However, we have not increased the level of expenditure to pre COVID – 19 levels due to the uncertainty on the full implications of building safety and preparing for a zero carbon future. The full financial impact of these is yet to become apparent therefore we have scaled back our development based on prudent estimates of these costs.

Almost half of the development programme will be funded through cash already raised and surpluses reinvested, the balance coming from borrowing along with a modest amount of social housing grant and sale of shared ownership properties. Our plan does not take account of any future staircasing on shared ownership properties and grant is only included where it is agreed with Homes England.

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How we fund
our Increase in net borrowing
development £21
Million
aspirations Surpluses reinvested
£7 Million
£41 Million
Sale of 1st tranche
£14
Shared ownership
Million
Grant
£37 Million Cash available
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The plan assumes new borrowing of £55 million along with £14 million of term debt repaid, though at present the Group has available £70 million of funding across two revolving credit facilities, both fully charged and available to draw. The first of these facilities finishes in 2024 though we plan to put in place long term funding over the next 12 months. We also start the year with substantial cash reserves of £37 million in line with our cautious approach to treasury management.

Our results are stress-tested against a number of different scenarios. These show that our covenants are all met, even if interest rates rise over the long term to 8% or rent is reduced by a quarter. The financial ratios below show the ongoing financial strength of the Group .

Group Ratio 2022 2023 2024 2025 2026
EBITDA* MRI: Turnover 42% 40% 41% 42% 40%
Ratio of Debt: EBITA-MRI* 12.0 13.1 12.6 11.16 11.3
EBITDA-MRI*: Interest Payable % 208% 187% 190% 205% 204%

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Future Planning

As noted above, in common with many social landlords we are continuing to investigate our buildings to ensure that they are safe places to live. The Board is clear that cost will not stop this work progressing. There is therefore a risk that some of these margins may fall if additional building safety work is required.

Our new strategic plan ensures that our impact on the environment and wider community is at the heart of all we do. We will deliver our Green Homes Plan conscious of the target of achieving net zero carbon by 2050: -

The Social Housing White Paper published in November 2020 sets out the policy direction for the next few years. We know that many important elements of the White Paper will take considerable time to develop however our customers' wellbeing remains our greatest priority and therefore we will: -

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Risk Management

The key strategic risks are summarised in the heat map below with the key controls summarised in the table following.

Almost
Certain		 5 R1
Likely 4 R6 R3 R7
Possible 3 R2\R5\R8
Unlikely 2 R4\R9 R10
Rare 1
1
Insignificant		 2
Minor		 3
Moderate		 4
Major		 5
Catastrophic

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Risk Management

Strategic Risk

arrears: Failure to manage rent arrears leading to a shortfall in income collection could led to pressure on liquidity.

 Risk score outside of agreed tolerance  Likelihood: Almost certain  Impact: Moderate

This is outside of tolerance as though we have seen an increased number of customers move onto universal credit with a consequent small and manageable impact on rent arrears, we are aware that numbers may increase as furloughing comes to an end. A management plan is in action to reduce arrears. Even with significantly increased rent arrears there is sufficient liquidity in place to manage this risk and the financial risk to the organisation is negligible though our operational position is not where it should be.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Risk Management

5 Failure to maintain a talented, diverse, engaged  Risk score within workforce: Without which we cannot meet any of our agreed tolerance goals.  Likelihood: Possible  Impact: Moderate

6 Failure of data security: Failure to ensure the Group has  Risk score within appropriate cyber security arrangements in place could lead agreed tolerance  to data losses, damage to our reputation and sanctions from Likelihood: Likely the Information Commissioner’s Office. Impact: Minor

7 Failure to ensure tenants are safe at home and  Risk score within colleagues are safe at work: The safety of our colleagues agreed tolerance and customers is paramount. Our approach in this area is  Likelihood: Possible  described on page 29. Impact: Major

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Strategic Report Risk Management

Under the Group’s Risk Management Strategy, agreed by the Group Board, all risks are managed with an acceptable level of residual risk to the business. The risk register is split into strategic and operational risks. Strategic risks are managed by the Leadership Team and reported to the Group Board and Group Finance, Risk and Audit Committee.

Assistant Directors are asked to sign statements, which are summarised and presented to the Group Finance, Risk and Audit Committee quarterly as part of the strategic risk update, with an annual compliance confirmation, detailing that all risks have been considered, that controls and assurances are in place and that all appropriate legislation has been considered and flowed into policies where necessary. All controls have specific accountability to Operational Managers and colleagues with timescales for implementation and on-going review through the assurance map. The Company Secretary meets monthly with the Internal Audit Manager to ensure audit actions are captured and monitored. Internal Audit Compliance continues to be reported quarterly to Senior Management, Group Finance, Risk and Audit Committee, and Group Board.

The Strategic Report was approved by the Board of Trustees on 22 July 2021

Richard Cooper Chair

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Value for Money statement

Housing associations must demonstrate a robust approach to Value for Money. The section below outlines our approach to Value for Money and demonstrates how:

Approach to Value for Money

The success of the approach taken by the Group in embedding Value for Money can be seen by our results. These successes are the result of a robust framework that ensures it is at the heart of all decision-making. Firstly, the Board ensure that our strategic plans include challenging targets for efficiency, cost control and customer service. The primary financial control in both the 2018 - 2021 and the newly approved 2021 – 2024 Strategic Plan was a minimum ratio of surplus (as measured by earnings before interest, depreciation and amortisation and adding back capitalised major repairs) to turnover. Without this level of performance, we would be unable to sustain the development programme in place. The Board, therefore, carefully monitors progress in this area. Budgets are set within this framework and any decisions made that have a financial consequence are considered through this prism.

Other arrangements for ensuring that value for money is being obtained include: -

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Value for Money statement

Our performance compared to comparable organisations

We have compared the Group’s results with the sector as presented ~~. R~~ egulator of Social Housing Summary of Global Accounts for 2020 for Registered Providers in the South East of England. The results highlight the financial strength of the organisation with virtually all results being above median or top quartile. Despite the impact of Covid-19 we increased our investment in properties whilst both interest cover and cost per unit continue to be better than most.

The Group
Budget Actual
Metric 2022 2021 2020 Median
Investment in properties - new and existing 8.7% 7.3% 6.6% 7.6%
New supply delivered – social housing 2.1% 1.8% 2.2% 2.4%
New supply delivered – non-social housing 0.0% 0.0% 0.5% 0.1%
Gearing 51.7% 47.9% 47.1% 50.8%
EBITDA: interest rate cover 205% 249% 228% 164%
Social housing cost per unit £ 3,709 3,044 3,317 3,836
Operating margin – (social housing only) 39.5% 45.5% 39.4% 34.8%
Operating margin (overall) 40.5% 44.5% 35.4% 29.8%
Return on capital employed 3.7% 4.5% 4.3% 3.3%

1 Operating margin excludes Social Housing Grant taken to income due to a different accounting treatment in mhs homes group (under the Charities SORP) and the social housing sector under the Housing SORP.

Green denotes top quartile Orange denotes above median

Our performance against our targets

The group The group
2021
Metric Actual
Budget		 Notes
Investment in properties - new and existing 7.3% 12.3% Note 1
New supply delivered – social housing 1.8% 1.8%
New supply delivered – non-social housing 0.0% 0.0%
Gearing 47.9%
51.8%		 Note 1
EBITDA: interest rate cover 249% 203%
Operating margin (overall) 45.5%
41.2%		 Note 2
Return on capital employed 4.5% 3.8%

Note 1: At the onset of the pandemic the decision was made to delay entering into any new developments until the situation became clearer. Therefore, no new schemes were started and therefore borrowing, and hence gearing, were lower.

20

Company number: 10704997 Charity Number: 1177565

mhs homes limited Value for Money statement

Note 2: This was a result of less shared ownership activity, which is at a lower margin, and reductions in major repair spend due to the pandemic.

Our performance against our targets and other key indicators

Target As at 31st As at 31st
March 2021 March 2020
13 week average of gross rent arrears 3.0% 4.1% 3.7%

The overall gross arrears have continued on an upward trend throughout the year. At present, 25% of our customers are on Universal Credit and of these 27% are on Alternative Payment Arrangements, so have their housing element paid directly to us. Despite accounting for 25% of customers, 45% of overall debt is owed by general needs customers on Universal Credit.

In response to the COVID-19 situation, we voluntarily committed to not evicting any tenants during the pandemic alongside the Coronavirus Act 2020 that states landlords must now give customers three months’ notice of possession proceedings.

Average turnaround days for voids 20 41.5 45.4

Whilst void turnaround time is better than in the previous year it is still substantially above target. However, the impact of COVID- 19 is significant in this area and we would expect this to fall during the upcoming year .

Average days to complete a repair 10 14.5 11

The increase in the year again can be attributed to the impact of COVID-19 as delays took place to non-emergency repairs service is currently working to ensure that where possible the impact on the service to the customers is kept to a minimum. Our year-end performance puts us in median to top quartile compared to peers.

Repairs completed right first time 85% 88% 86% This measure has achieved a sustained level of improvement during the year.

Customer satisfaction

n/a 65% n/a

During the year we changed the methodology of how we collected customer satisfaction to bring us in line with the HouseMark STAR survey. As this was the first year of collecting information in this way, 2020/21 would act as a “baseline” to set a target, 80%, for 2021/22.

Green denotes meeting or exceeding target

21

Company number: 10704997 Charity Number: 1177565

mhs homes limited Value for Money statement

Return on assets

While most of the activity in the Group relates to social housing, the Group own 368 market rented properties. These properties are held as an assessment to generate a surplus that can be reinvested back into social housing. This process is managed by:

The overall return on the social housing stock is also monitored. A greater return would be obtained if rents were permitted to increase above Local Housing Allowances rates; however, the Board took the view that it was essential that rents were kept affordable to those in housing need, with social benefit outweighing return on assets.

Financial return on assets for the Group are summarised below:

Return on investment
%
Net Cost
of Asset*
_Income
£’00_**
_Surplus
£’00_**
2020/21		 2019/20
£’m £’m £’m
General needs 224.5 48.0 25.4 11.3% 8.8%
Shared ownership 46.3 2.3 1.2 2.6% 2.3%
Market rented*** 40.5 3.3 1.6 4.0% 3.4%

** Net of social housing grant received in the year

*** After adjusting for deprecation to ensure comparability with other income streams

The high return on general needs stock reflects the purchase of the stock 30 years ago. The increase represents the fall in major repairs in the year.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Reference and administrative details

Trustee Position Changes in year R Cooper Chair and Non-Executive N Hopkins Non-Executive M Miles Lea Non-Executive Lord Roy Kennedy Non-Executive Appointed 23[rd] July 2020 A Baker Non-Executive Resigned 9[th] July 2020 K Franklin Non-Executive R Christopher Non-Executive A Hook Chief Executive Elected by Tenants annually J Seager Tenant Nominee M Mulligan Tenant Nominee Resigned 23[rd] July 2020 A Campbell Tenant Nominee Appointed 23[rd] July 2020 Group Finance Risk and Audit Committee N Hopkins Chair R Oirschot Member S Bate Member Remuneration Committee K Franklin Chair R Christopher Member A Baker Member Resigned 9 July 2020 R Cooper Member Treasury Committee R Christopher Chair S Bate Member L Barton Member R Cooper Member Executive Team A Hook Chief Executive B Shelmerdine Finance Director S Goad Operations Director

Auditors – External Charity’s address BDO LLP mhs homes 2 City Place Broadside Beehive Ring Road Leviathan Way Gatwick Chatham West Sussex Kent RH6 0PA ME4 4LL

Country of incorporation: England

Bankers: National Westminster Bank Plc

Legal status

Private company limited by guarantee without share capital No. 10704997 Registered charity with the Charity Commission No. 1177565

.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Reference and administrative details

Richard Cooper | Chair

Richard joined the Board on 1 May 2016 and was appointed as Chair in July 2018. He has a track record in the private sector of creating value through organic growth, business turnarounds and managed a number of mergers and acquisitions.

Ashley Hook | Chief Executive

Ashley, a chartered surveyor, was appointed Chief Executive of mhs homes in 2009. He has a strong background in housing, having previously worked for various local authorities and housing associations.

Nigel Hopkins | Board member

Nigel has over 30 years’ experience in finance in a variety of roles including Finance Director for Abbeyfield, a leading charity in the supported housing sector. Nigel is currently a non-executive Director on the board at Places for People, the third largest regulated housing provider in the country, he's also Chair of their Audit Committee.

Kate Franklin | Board member

Kate has a combination of housing and retail experience which has drawn on her commitment to customer experience and insight. As an experienced executive director, she has a track record of delivering organisational value through creating a clear line of sight between the customer, operational performance and business results.

Ray Christopher | Board member

Ray is a corporate financier and treasurer with more than 30 years of international finance experience across many sectors including energy, hightech and social housing. His expertise includes capital markets, risk and active asset management.

Mark Miles Lea | Board member

Mark has worked in the housing sector for over 25 years, including over 5 years at a senior executive level. He has particular expertise in the development of new homes. He is also a Non-Executive Director for a community-based Housing Association in east London.

Julie Seager | Board member

Julie has been a mhs homes tenant for a number of years. She knows first-hand the difference quality; affordable housing makes to people's lives and has many years of experience working in special needs education.

Lord Roy Kennedy | Board member Lord Roy Kennedy is the current Shadow Minister for Housing in the Lords. He grew up in social housing in Southwark, is a passionate believer in the sector and understands the need to build more affordable homes.

Anna Campbell | Board member Anna is proud to be on the board as it means that she can contribute towards realising mhs' ultimate ambition of ending the housing crisis in North Kent. Currently in the final year of a design degree, her most recent project was working alongside Shelter.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Objectives and activities and Public Benefit Statement

Objectives and Activities

mhs homes limited (“mhs homes”) is a registered charity with the objectives to provide social housing in Kent and all services linked to this provision to alleviate housing need in Medway and the surrounding areas. These include constructing, improving and managing social housing, along with the sale of shared ownership properties. It was formed on 29 July 1990 when it acquired the entire housing stock of the then Rochester upon Medway City Council. We were one of the first large-scale voluntary transfers and the only one to take place that was not registered with the regulator.

Public Benefit Statement

The Trustees of mhs homes ensure that the purpose of the charity is for the public benefit by: -

Adopting policies that require it to allocate housing, both rented and shared ownership, to applicants that meet with its objectives of acting for the relief of those in need by reason of poverty, age, ill health or disability – all social housing is rented to new customers in conjunction with our partner local authorities with rent levels below 80% of market rent.

Developing new affordable housing both rented and shared ownership – by investing our surpluses in building new properties.

Underneath these broad aims are strategies to ensure the properties we own are managed in a way that provides an excellent customer service through our day to day interactions with our customers and a high-quality home to live in. These strategies are considered in detail in the Strategic Report on page 6 which also considers the difference the charity’s work has made to the circumstances of its beneficiaries and the society in which we operate.

The Trustees recognise that a financially successful mhs homes is able to provide more new social housing. Therefore, as well as having the objective of financial efficiency, which is described in more detail under the Value for Money statement on page 19, the objectives of mhs homes allow for financial investments. These are defined under an Investments Policy agreed by the Trustees and our current strategy limits the investments to the supply of market rented properties and a loan to a subsidiary that owns the head office building.

The level of investment in market rented properties is considered each year as part of the annual budget setting procedure, with the current policy stating that no more than 35% of cash surpluses should be used for financial investments. These properties are purchased with the intention of holding them over the long term, with the returns being reviewed at regular intervals.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

mhs homes limited (“ mhs homes ”), the parent body of the mhs homes group (“ the Group ”), is a registered charity (1177565) and a company limited by guarantee (10704997). It is governed through a Memorandum and Articles of Association. The Board of Trustees of mhs homes, who are also directors of the charity for the purpose of the Companies Act 2006, have overall responsibility for the direction, management and control of the charity.

Whilst mhs homes is not registered with the RSH it is fully committed to reinvesting any surpluses back into social housing. It is regulated by the Charity Commission and its disclosures and accounting treatment follow those set out by the Charity Commission. However, as a provider of social housing we have structured this report to be comparable with those provided by the regulated social housing sector. As the parent organisation, mhs homes has five subsidiaries: -

mhs homes is also the corporate trustee for Lord Kitchener Memorial Homes Trust, an Almshouse in Medway owning six properties and registered with the Charity Commission.

mhs homes has adopted and is fully compliant with the National Housing Federation's Code of Governance: promoting board excellence for housing associations (2015 edition). We are currently working towards compliance with the 2020 code and are confident we will be fully compliant by 31[st] March 2022. This code is more relevant to mhs homes than the Charity Governance Code. In common with many housing associations, Board members receive a fee and the reimbursement of properly incurred business expenses. Along with the National Housing Federation Code of Governance mhs homes has adopted the “Conduct Becoming” standard with respect to conduct and probity. There is a system of open declaration recorded in the minutes of Board meetings and for other matters occurring outside the boardroom there is a Declarations Register. This is accessible to all members of the Board and is systematically scrutinised by the Group Finance, Risk and Audit Committee.

Responsibility to Heart of Medway Housing Association

mhs homes acknowledges its responsibility as Parent of Heart of Medway Housing Association Ltd; an entity regulated by the RSH and subject to the regulatory Framework. An Intra Group Agreement exists between Heart of Medway Housing Association and mhs homes that recognises the duty of the unregistered parent to provide support or assistance to the registered provider to ensure that it fulfils its regulatory requirements. It further ensures that the social housing assets within Heart of Medway cannot be put at risk through the activities of the Parent.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

Role of the Board

As a Parent Charitable Company limited by guarantee the Board can consist of up to ten Trustees, including two tenant Board members who are nominated annually by the tenants of mhs homes. During the year there are at least six meetings, one of which is the Annual General Meeting. The role of the Board is to govern the Group to provide accountability, to ensure positive relationships with stakeholders, to give advice to management, to provide strategic direction, and to be collectively responsible for the proper stewardship of the organisation. Moreover, the Board strives for high standards of governance by ensuring effective performance and rigorous compliance in everchanging environments. As a means of renewal and self-evaluation, the Board holds away days and strategy days to review its own performance and keep updated. The agenda covers strategy, Board development, team building, financial matters, vision and business proposals.

The Board delegate the day-to-day management of the business to the colleagues, within the strategic direction agreed by the Board. Responsibilities of colleagues are defined through Standing Orders, which are reviewed regularly by the Board. Major financial contracts where the charity is committed to expenditure of more than £5 million are agreed by the Board, with smaller amounts delegated to senior colleagues. The Board monitor this expenditure through an agreed budget and long-term financial plan, with management accounts being scrutinised by both the Group Finance Risk and Audit Committee and the Board.

Composition of the Board

Details of membership during the year are shown on page 23. During the year the Board held eight meetings, inclusive of the Annual General Meeting, at which the average attendance rate was 95% (2020: 89%). Applications for membership, except for the tenant Trustees, are invited by open advert. Applicants are shortlisted and interviewed with appointments made according to required skills, competencies and experience. Regular skill audits of the Board are undertaken. Trustee terms are normally limited to two terms of three years, although with the provision of our chosen governance code by exception a Trustee may serve up to a maximum of nine years. The tenant trustees are appointed annually through a ballot of all tenants of mhs homes in accordance with the rules of the organisation.

Induction and training opportunities for Trustees

The induction process includes visits to projects, meetings with colleagues and one-toone sessions with the other Trustees, as a preliminary to attending Trustee Board meetings. All new Trustees, irrespective of experience, are also required to attend an Institute of Directors course on the role of the Director and the Board. A briefing session on the governing documents of the charity is provided by the Secretary, in liaison with the other executives of mhs homes . All Trustees undergo an annual appraisal with the Chair, as well as conducting a review of effectiveness of the Board as a whole.

Arrangement for remuneration of Trustees

To ensure transparency and independence the Board has established that the fees of the Non-Executive Directors be reviewed annually using external benchmarking advice.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

Fair representation

The Board communicates with and manages the interests of its stakeholders through the full time professional input of the Executive Directors’ team. The Board conforms to best practice as defined in standards published by the National Housing Federation. There is an annual governance report which scrutinises and appraises the Board, and to which each member contributes. The report confirms that boardroom conduct meets the highest standards of corporate governance.

Group Finance, Risk and Audit Committee

The Committee met five times last year and is responsible for reviewing the finances, including budget, long term financial plan, stress testing and mitigation plans before recommending to Board, policies and procedures for identifying and assessing business risks, and the on-going management of those risks. The Committee also reviews the effectiveness of internal control systems, considers reports from the internal and external auditors and reviews the annual financial statements prior to Board approval.

Customer Scrutiny Panel

The Customer Scrutiny Panel is an essential part of the governance structure and exists to hold the organisation to account from a customer perspective. The services to be reviewed are decided by the Panel and carried out to ensure a realistic view of strengths and areas of improvement is gained. This process is supported by external consultants so the Panel can call upon independent expertise to assist its work.

Remuneration Committee

The Remuneration Committee is responsible for reviewing the pay and conditions of service of the Executives and has oversight of the Chief Executive’s annual appraisal. It met on three occasions in the year and consists of three Non-Executives from the Group Board. Where needed the Renumeration Committee seek independent external advice.

Treasury Committee

The Treasury Committee has met four times during the year. It is responsible for scrutinising treasury activities and recommending policies, strategies and new borrowings to the Boards.

Leadership Team

The Leadership Team during the year consisted of eight members, being the Chief Executive, Executive Directors and Assistant Directors. Together they are responsible for the day-to-day operations of the Group and act within the authority delegated to them by the Board, as set out in Standing Orders and Delegated Arrangements.

Modern Slavery and Human Trafficking Act 2015

We have a Modern Slavery and Human Trafficking statement. It was agreed by the Board and signed by the Chief Executive. Our statement is published on our website and confirms our commitment to ensuring that there is no modern slavery in our business or in our supply chains.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

Interests of the Employees

The Board is committed to maintaining a competent and motivated workforce by ensuring that sufficient people with the appropriate skills, knowledge and experience are employed to meet all business objectives. Details on employee numbers are contained in note 11 to the financial statements. Our colleagues are our most valuable resource and we place great emphasis on high levels of colleagues’ engagement. We are proud to hold Gold Investors in People accredited status since 2012.

There is an Employee Forum (“Voice”) which meets regularly to discuss terms and conditions of service and matters of colleagues’ interest and input. The constitution has provision for meetings between the Directors and colleagues’ representatives. For purposes of understanding and clear direction, there is a framework of delegation to colleagues set out in Financial Regulations and Procurement Guide. It provides the details of the fundamental rules and procedures by which business is conducted, including the high expectation we have regarding integrity and probity.

Our Equality Diversity and Inclusion Policy covers all aspects of employment practices, from recruitment through to appointments, training, career development and succession planning. The Group recognises its legal and social obligations and has a recruitment policy that is inclusive of all protected characteristics.

We aim to attract and retain the most talented people. The Human Resource team ensures that we have effective procedures for employee relations, recruitment, selection, compliance, pay, wellbeing, reward, and learning and development in place. Terms and conditions, including salaries, are set at competitive rates to attract and retain high calibre employees and are regularly benchmarked.

Impact on the environment

The Group recognises that it spends substantial amounts on new build projects, repairs and planned maintenance, and there is a strong commitment to our responsibility through business operations to minimise our environmental impacts as far as is reasonably practicable. An Environmental Management System (EMS) is in place that is certified to ISO14001. We are committed to conserving resources, minimising the risk of pollution, reducing waste produced and waste to landfill, and assisting with regeneration. The EMS is regularly reviewed, and all significant impacts are monitored to ensure that adequate measures are in place to reduce our impacts and promote environmental sustainability. Further information is available on page 14 and 35.

Health and safety

The Board is aware of its health and safety responsibilities and receives reports on health and safety issues, including accident statistics and monitoring reports. Detailed health and safety policies and procedures are in place and provide colleagues training and education on matters of health, safety and welfare. The Health and Safety Manager reports to the Board, Leadership Team and Group Finance, Risk and Audit Committee. Besides the duties of compliance testing and evaluation, the Health and Safety Manager serves the interests of colleague reducing the risk of accidents and loss to the business . The British Safety Council audit grading has been in place since 2015 and was a validation of the work taking place organisation wide and the importance given to a safe working culture. Our focus on health and safety ensured the retention of the British Safety Council level 5 award in 2019, one of the highest standards of achievement in the world of health and safety management.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

Creditor Payment Policy

It is the policy to agree terms of payment with suppliers at the time of negotiating the transaction and abide by those arrangements conditional on being satisfied that the goods or services are in accordance with the agreed specification.

Going concern

After reviewing the budget of mhs homes for 2021/22 and a period beyond 12 months from the signing of the accounts, and based on normal business planning and control procedures, the Directors have a reasonable expectation that mhs homes has adequate resources to continue in operational existence for the foreseeable future. Future plans assume new borrowing of £55 million and the Group has available £70 million of funding across two revolving credit facilities, both fully charged and available to draw. The first of these facilities finishes in 2024 though we plan to put in place long term funding over the next 12 months. We also start the year with substantial cash reserves of £37 million in line with our cautious approach to treasury management.

Qualifying third part indemnity provisions

The directors have the benefit of an indemnity which is a qualifying third party indemnity provision. The indemnity was in force throughout the last financial year and is currently in force. The group also purchased and maintained directors and officer’s liability insurance in respect of itself and its directors throughout the financial year.

Compliance with Governance and Financial Viability Standard

The Board of mhs homes determines and monitors the strategic direction of the Group and has voluntarily adopted the National Housing Federation’s Code of Governance: promoting board excellence for housing associations [2015 edition]. It is an RSH requirement under the Governance and Financial Viability Standard to adopt an appropriate code and therefore a regulatory requirement for Heart of Medway. Both mhs homes and Heart of Medway undertake an annual review of compliance against this code which is certified by the Board. As the unregistered Parent of a registered provider, mhs homes is fully committed to maintaining Heart of Medway compliance with the RSH’s Governance and Financial Viability Standards. mhs homes has formalised the management arrangements in place through an Intra Group Agreement that acknowledges and supports the Registered Provider status of Heart of Medway. We are currently working towards compliance with the 2020 code and are confident we will be fully compliant by 31[st] March 2022

Funds held as custodian on behalf of others

No funds are held as custodians on behalf of others.

Exemptions from disclosures

No exemptions from disclosures have been made in this report

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

Fundraising statement

Although we do not undertake fundraising from the general public, the legislation defines fund raising as “soliciting or otherwise procuring money or other property for charitable purposes.” Such amounts receivable would be presented in our accounts as donations. In relation to the above we confirm that if funds were held, they would be managed internally, without involvement of third parties. The day-to-day management of all income generation is delegated to the Leadership Team, who are accountable to the Trustees. The charity has no undertaking to be bound by any regulatory scheme. We have received no complaints in relation to fundraising activities. Our terms of employment require colleagues to behave reasonably at all times; as we do not approach individuals for funds, we do not consider it necessary to design specific procedures to monitor such activities.

Our Reserves Policy

The amount of reserves held by a registered charity will normally be the amount of unrestricted funds held. However, the past activities of mhs homes have been funded through a combination of surpluses and borrowings which means that this methodology is not appropriate and does not reflect the substantial portfolio of properties that is held that allows mhs homes to meet its charitable objectives. mhs homes is in the position where it has a high degree of certainty over the income from its property portfolio, being able to set rents that it feels are affordable within the boundaries of providing social housing. This allows the long-term financial plans to incorporate: -

For the purpose of short and medium term financial management the Trustees are concerned more with the management of working capital and consider that a healthy working capital position is in line with a policy of keeping reserves to fund future unrestricted expenditure in the event of a material decline in surpluses. Therefore, mhs homes has a robust treasury strategy that ensures: -

mhs homes currently exceeds the requirements of the reserves policy and our future planning show us maintaining this position for the foreseeable future.

Auditor

All of the current Board members have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Associations’ auditor for the purpose of their audit and to establish that the auditor is aware of that information. The Board members are not aware of any relevant audit information of which the auditor is unaware. BDO LLP have expressed their willingness to continue. A resolution for the re- appointment of BDO LLP as auditors of the Association is to be proposed at the forthcoming Annual General Meeting.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Our structure, governance and management

Trustees’ responsibilities for the financial statements

The Trustees, who are also Directors of mhs homes limited for the purposes of company law, are responsible for preparing the Strategic Report, the Trustees’ Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Trustees to prepare financial statements for each financial year. Under that law the Trustees have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland. Under company law, the Trustees must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the charitable company and the Group and of the incoming resources and application of resources, including the income and expenditure, of the charitable company and the Group for that period.

In preparing these financial statements, the Trustees are required to:

The Trustees are responsible for keeping adequate accounting records that are sufficient to show and explain the charitable company’s and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the charitable company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. The Trustees are also responsible for safeguarding the assets of the charitable company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Trustees confirm that so far as each Trustee is aware there is no relevant audit information of which the Parent Charitable Company’s auditors is unaware and the Trustees have taken all steps that they ought to have taken as Trustees in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The Trustees are also responsible for the maintenance and integrity of the corporate and financial information included on the Parent Charitable Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Section 172 Statement

How the Board complied with its Section 172 duty

The Companies Act 2006 (CA2006) sets out a number of general duties which directors owe to the company. Under section 172, directors have a duty to promote the success of the company for the benefit of the members as a whole and, in doing so, they should have regard to (amongst other matters) six specified areas that relate, by-and-large, to wider stakeholder interests. These six areas are discussed below.

1. Likely consequence of any decision in the long term

mhs is a long term business that provides homes and therefore security for our customers whilst generating surpluses that allow us to invest, along with new borrowings, into new social housing. As the building of new social housing is a loss-making activity, we monitor closely the impact of our development aspirations on the long-term financial plan with forecast in place for a minimum of 25 years. This is considered by the Board on an annual basis, or more often if the situation demands, and the impact is considered in detail in the section Future Planning on page 13.

We operate a three year strategic plan, with the most recent one for the period 2021 to 2024 approved by the Board in March 2021.

2. Foster business relationships with suppliers, customers and other

mhs homes works in collaboration with a variety of national, regional and local suppliers, including voluntary and charitable organisations. Our engagement with suppliers promotes fair and open competition, and where appropriate we look to foster long-term relationships. We work closely with the councils in the areas in which we are based and value highly their support.

We engage with our customers in several ways. The workings of the Customer Scrutiny Panel are described on page 28. We measure how our customers feel about their day-to day interactions with the Group by measuring the Net Emotional Value. In 2020 we reintroduced STAR (Survey of Tenants and Residents) surveys which will add a further level of customer feedback and enable more precise sector benchmarking. The STAR surveys cover seven core questions, from satisfaction with the quality of the home, through to value for money.

We aim to deal with complaints promptly so we can learn as a business and resolve the issue for the customer. During the year, 428 complaints were received with 243 being upheld.

3. Maintain a reputation for high standards of business conduct

As a charity our reputation for high standards is essential to how we work. To ensure we meet the highest standards we have policies on fraud and anti-bribery in place which are described in more detail on page 38. The organisation has a whistleblowing policy encouraging colleagues to raise issues of malpractice or irregularities which are investigated independently under the Public Interest Disclosure Act. The Finance Risk and Audit Committee also receives reports if issues are raised.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Section 172 Statement

4. Act fairly as between members of the company

The disclosure is relevant to joint ventures and associates, and those companies with multiple classes of shares (for example, private-equity owned), minority or dissenting shareholder groups. mhs homes is a company limited by guarantee without share capital and no payment of dividends. In the event of the charity being wound up, the liability in respect of the guarantee is limited to £1 per member.

5. Interests of employees

This is considered on page 29

6. Impact of operations on the community and the environment

See pages 14 and 3 for our impact on the environment and community.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Emissions & energy consumption annual report

Streamlined Energy Carbon Report (SECR)

The SECR framework is a mandatory UK-wide energy and carbon reporting scheme, implemented to create a straightforward carbon reporting framework. SECR seeks to improve transparency and help reduce UK carbon emissions associated with business and industry. Measurement and public disclosure of emissions can lead to an increased awareness of energy cost and carbon emissions and in turn improve the visibility of risks and opportunities through improvements to energy efficiency.

Companies that qualify must measure and report energy and GHG emissions annually within their financial accounts and reports. Organisations are encouraged that all information is aligned to financial years, to aid comparability and consistency of information across reports and organisations.

This report has been compiled in line with the March 2019 BEIS 'Environmental Reporting Guidelines: Including streamlined energy and carbon reporting guidance', and the EMA methodology for SECR Reporting. All measured emissions from activities which the organisation has financial control over are included as required under The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, unless otherwise stated in the exclusions statement. The carbon figures have been calculated using the BEIS 2020 carbon conversion factors for all fuels, other than the market based electricity which has been taken from OPUS and EDF as the UK suppliers .This is based on all invoices and consumption data which is then fed into the reporting tool. The total location based energy consumption is expressed in kWh: kilowatt hours, as this is the unit specified by SECR legislation.

The footprint includes the ‘Scope 1’ (e.g. combustion of fuel, fugitive and process emissions) and ‘Scope 2’ (electricity) emissions associated with the activities for which the Group are responsible. For the purposes of the report only ‘Scope 1’ (Direct) and ‘Scope 2’ (Indirect) emissions sources are required

Pro-rata extrapolation has been used to provide a full year's consumption for electricity and gas. Consumption figures were provided for the period 01/04/2020 to 26/03/2021, the remaining 5 days were estimated based on these figures. Transport mileage for fleet vehicles has been estimated using a direct comparison from the period January 2020 to December 2020 to represent a full years’ worth of data.

tC O2e Increase
**(Decrease) **		 kWh: kilowatt hours kWh: kilowatt hours Increase
**(Decrease) **
2019/20 2020/21 2019/20 2020/21
Electricity 678 508 25% 2,654,380 2,178,014 18%
Natural Gas 862 1,080 25% 4,688,583 5,875,329 25%
Direct Transport 263 485 84% 1,074,715 1,121,520 12%
Total 1803 2,073 15% 8,417,678 9,174,863 9%

mhs homes continues to procure 100% Renewable Energy Guarantees of Origin backed renewable electricity resulting in electricity emissions of 0tC02e.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Trustees’ annual report incorporating directors report Emissions & energy consumption annual report

The intensity Ratio

An intensity ratio is a way of defining your emissions data in relation to an appropriate business metric, such as tonnes of CO2e per sales revenue, or tonnes of CO2e per total square metres of floor space. This allows comparison of energy efficiency performance over time and with other similar types of organisations. SECR Intensity ratios are calculated by dividing your emissions by your organisation-specific metric. The government’s environmental reporting guidelines give plenty of examples of common intensity ratios. While organisations are free to choose their own intensity ratio, these should be most appropriate to your business activity, e.g. tonnes of CO2e per total million tonnes of production for the manufacturing sector. They should also be calculated on a consistent basis year on year with the method of calculation disclosed, and meaningful to stakeholders.

The Intensity ratio increased from 26.6 Tco2e/£m to 34.5 Tco2e/£m. This increase is due both to the increase in emissions and fall in turnover through a planned reduction in shared ownership sales.

Year on Year Emissions Changes

The increase in natural gas consumption has been attributed to higher tenant occupancy at MHS sites during lockdown periods, as well as cold snaps during the 2020/21, leading to higher consumption in communal areas. Transport emissions increased from 2019/20 to 2020/21 attributable to an extra 10 vehicles in the assets team as services were brought in house which would lead to less emissions by third parties. MHS also deployed their fleet vehicles to assist with food parcel delivery during the pandemic.

Energy Efficiency Actions taken

A higher budget on a development scheme of 122 units to increase the sustainability measure was agreed with the extra funds being invested in photovoltaics panels and increased insulation that will result in the finished schemes having a SAP rating level “A” and therefore being net zero carbon. During the year over 90% of new units completed were at SAP rating “B”. It was also agreed that all new properties approved would have a SAP rating of at least “B”

Software was purchased in January 2021 to enable the Group to understand, analyse and report upon its energy related data with a high level of confidence in order to inform its new Sustainability and Asset Management Strategy. These will be the foundation of our approach to meeting the minimum SAP “C” rating by 2030 and Net Zero Carbon by 2050. Data will be processed in order to identify, down to property level, the required works (and estimated costs) to meet our sustainability targets. In 2020/21 MHS completed a number of planned maintenance programmes. These included: -

Overall, the work increased the average SAP rating on our properties from 68 to 70 ensuring that our average SAP rating is now with level “C” with 4,574 properties being at “C” or above.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Assessment of the effectiveness of internal controls

Statement of Internal Control

The Board has overall responsibility for establishing and maintaining the whole system of internal control for the organisation and for reviewing its effectiveness. The Board recognises that no system of internal control can provide absolute assurance against material misstatement or loss or eliminate all risk of failure to achieve business objectives. The system of internal control is designed to manage key risks and to provide reasonable assurance that planned business objectives and outcomes are achieved. It also exists to give reasonable assurance about the preparation and reliability of financial and operational information and the safeguarding of the Group’s assets and interest.

Whilst mhs homes is not a registered provider, our subsidiary, Heart of Medway Housing Association, is registered with the Regulator of Social Housing (RSH). In accordance with the RSH regulatory framework, mhs homes must ensure Heart of Medway complies with the regulatory requirements. The focus on financial controls extends to the commitment of resources for monitoring operations, compliance testing, reputational risk evaluation and a wide range of risk management activities. This has included stress-testing of different scenarios and the creation of an Assets & Liabilities Register. Self-assessments against the Governance and Viability Standard has found that the Heart of Medway is compliant. In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls which is embedded within the normal management and governance processes. This approach includes the regular evaluation of the nature and extent of risks to which the Group is exposed and is consistent with Turnbull guidelines.

The Group has adopted the National Housing Federations Code of Governance and is compliant to it.

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

Identification and evaluation of key risks

Management responsibility has been clearly defined for identification, evaluation and control of significant risks through the Risk Management Strategy. This puts in place a formal and ongoing process of management review for all areas of the Group’s activities. The Leadership Team regularly reviews and receives reports on significant risks facing the organisation and the Chief Executive is responsible for reporting to the Finance Risk and Audit Committee and the Board any significant changes affecting key risks.

Control environment and control procedures

The Board retains responsibility for a defined range of matters covering strategic, operational, and financial and compliance issues, including treasury strategy and large new investment projects. The Board has adopted and disseminated to all employees a code of conduct for employees. This sets out the Group’s policies regarding the quality, integrity and ethics of its employees. It is supported by a framework of policies and procedures with which employees must comply. These cover issues such as delegated authority, segregation of duties, accounting, treasury management, health and safety, data and asset protection, and fraud prevention and detection.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Assessment of the effectiveness of internal controls

Information and financial reporting systems

The Board approves a long-term financial plan and limits on investment in its various activities on an annual basis that link through to the strategic plan. This is agreed in three year cycles but is updated and reviewed regularly. Financial reporting procedures include detailed budgets for the year ahead, management accounts produced monthly and forecasts for the remainder of the financial year. These are reviewed in various levels of detail by appropriate colleagues and in summary on a quarterly basis by the Board. The Board also regularly reviews progress towards the achievement of key business objectives, targets and outcomes.

Fraud

The Board has a policy on fraud covering prevention, detection and reporting of fraud and the recovery of assets. A register is maintained of any frauds or potential frauds. The Finance, Risk and Audit Committee reviews the fraud register at each meeting and has taken the results of these reviews into account in its report to the Board.

Anti-bribery Policy Statement

We seek to maintain the highest standards of ethics and integrity in the way we conduct our business. We recognise that bribery and corruption, in all forms, are illegal and unacceptable. Our Anti-bribery Policy Statement has been integrated into our code of conduct and our gifts and hospitality policy, adopted by the Board, and made available on our intranet.

Audit assurance

A summary of all internal reports and the resultant actions are reported to the Finance, Risk and Audit Committee during the year. The Business Assurance Manager, has direct access to the Finance, Risk and Audit Committee and presents the Audit Reports.

An audit plan was agreed by the Committee for 2020/21 and was completed in full apart from the audit on Waste Management that is in progress and will be completed in Q1 of 2021/22. Out of the 16 completed audits, none were issued with limited assurance although there have been high priority recommendations to address the control environment.

The internal audit service is co-sourced between the Business Assurance Manager, who is a Chartered Auditor, with the audit contractor, RSM-UK. During the year they have undertaken 3 internal audit reviews on Core Financial Systems, Empty Homes and Rents Income as well supporting the Business Assurance Manager in providing assurance, support and advice to the Organisation.

The Committee met 5 times during the financial year and considered internal control and risk at each of its meetings.

BDO LLP provides external auditing services. This service was tendered in 2019. The Board receives a memorandum from the external auditors identifying any internal control weaknesses that may have come to their attention in the course of their duties. This letter is considered by the Finance Risk and Audit Committee and the Board. The Committee met with the internal and external auditors during the year without the presence of any paid colleagues or executive directors. The Committee conducts an annual review of the effectiveness of the system of internal control and takes account of any changes that may be needed to maintain the effectiveness of the risk management and control process. The Committee makes an annual report to the Board, which the Board has received.

38

Company number: 10704997 Charity Number: 1177565

mhs homes limited Assessment of the effectiveness of internal controls

Financial Controls

On behalf of the Board, the Finance Risk and Audit Committee has reviewed the effectiveness of the system of internal control, which operated across the Group for the year ended 31 March 2020. Recognising the importance of this Committee, the membership includes two independent committee members. The Chair is also a non-executive director on the Group Board. The system of internal financial control includes:

Other external sources of advice and evaluation

The Board has at its disposal a wide range of independent external sources of advice to validate control mechanisms, verify performance and report on findings. Quality assurance is assessed through the regular renewal of ISO and Customer Service Excellence standards. The Group’s commitment to drive improvement by listening to customers is supported by the use of various methods to measure customer insight and satisfaction including Net Promoter Score and Net Emotional Value, which are subject to annual audit. Ad-hoc advice on legal issues is provided by Trowers & Hamlins, who are leading lawyers in the sector. Other expert professionals are engaged from time to time; for example, Savills and JLL advises on matters of stock valuation.

Performance indicators

Reports are presented to the Board covering key performance indicators across the activities of the Group . These are subject to a continuous review to reflect current targets and business priorities. Reports cover progress against the annual business plan, budget performance information, treasury management, equal opportunities, employee sickness and absence, colleagues’ turnover, housing statistics, health and safety and customer complaints.

The Board of mhs homes confirms there were no material failures in its control environment, and an effective control framework has been in place for the 2020/21 year and up until the adoption of these accounts .

39

Company number: 10704997 Charity Number: 1177565

mhs homes limited Independent auditor’s report

Independent Auditor’s Report to the Members of mhs homes limited

In our opinion, the financial statements:

We have audited the financial statements of mhs homes limited (“the Parent Charitable Company”) and its subsidiaries (“the Group”) for year ended 31 March 2021 which comprise the consolidated and Parent Charitable Company statement of financial activities, the consolidated and Parent Charitable Company balance sheet, the consolidated cash flow statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remain independent of the Group and Parent Charitable Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Conclusions related to going concern

In auditing the financial statements, we have concluded that the Trustees’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Charitable Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Trustees with respect to going concern are described in the relevant sections of this report.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Independent auditor’s report

Other information

The Trustees are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. The other information comprises: the Trustees’ Report, the Strategic Report, Value for Money and Assessment of the Effectiveness of Internal Controls. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Other Companies Act 2006 reporting

In our opinion, based on the work undertaken in the course of the audit:

In the light of the knowledge and understanding of the Group and the Parent Charitable Company and its environment obtained in the course of the audit, we have not identified material misstatement in the Strategic report or the Trustee’s report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion;

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Independent auditor’s report

Responsibilities of Trustees

As explained more fully in the Trustees’ responsibilities statement, the Trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Trustees determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Trustees are responsible for assessing the Group’s and the Parent Charitable Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustees either intend to liquidate the Group or the Parent Charitable Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

We have been appointed as auditor under the Companies Act 2006 and report in accordance with the Act and relevant regulations made or having effect thereunder.

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

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Based on our understanding of the Group and the industry in which it operates, we identified that the principal laws and regulations that directly affect the financial statements to be the Companies Act 2006, Charities Act 2011 and relevant Tax Legislation. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

In addition, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: Employment Law, Data Protection and Health and Safety Legislation. Auditing standards limit the required audit procedures to identify noncompliance with these laws and regulations to enquiry of the Board and other management and inspection of regulatory and legal correspondence if any.

Audit procedures capable of detecting irregularities including fraud performed by the engagement team included:

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Independent auditor’s report

then tested substantively;

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

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

Use of our report

This report is made solely to the Charitable Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Charitable Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Charitable Company and the Charitable Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Elizabeth Kulczycki (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor Gatwick

28 July 2021

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

43

Company number: 10704997 Charity Number: 1177565

mhs homes limited

Consolidated Statement of Financial Activity

mhs homes group Note Revaluation Unrestricted Restricted Total Total
reserve funds funds funds funds
2021 2021 2021 2021 2020
£’000 £’000 £’000 £’000 £’000
Income from charitable activities
Social housing lettings 4 - 52,204 - 52,204 49,869
Supporting People 4 - - 388 388 388
Other income 4 - 439 - 439 348
Sale of fixed assets 12 - 311 - 311 653
First tranche shared 4 - 2,764 - 2,764 13,131
ownership sales
Income from non-social housing activities
Other 4 - 976 - 976 1,012
Income from investment
Market rented Properties 4 - 3,352 - 3,352 3,123
Investment income 13 - 31 - 31 33
Total income - 60,077 388 60,465 68,557
Expenditure on charitable activities
Social housing lettings 4 - 27,745 - 27,745 29,118
Supporting people 4 - 356 388 744 673
Other expenditure 4 - 502 - 502 427
First tranche shared 4 - 2,137 - 2,137 10,905
ownership sales
Expenditure on non-social housing
activities
Other 4 - 484 - 484 476
Expenditure on investment activities
Market rented properties 4 - 1,018 - 1,018 1,058
Interest and financing 14 - 11,412 - 11,412 11,527
costs
Total expenditure - 43,654 388 44,042 54,184
Net income - 16,423 - 16,423 14,373
Gain/(Loss) in fair value of:-
Investments 19 13 - - 13 (1)
Investment properties 18 - 4,085 - 4,085 (3,069)
Actuarial gain/(loss)
on defined benefit 26 - 1,101 - 1,101 (2,207)
pension scheme
Net movement in funds 13 21,609 - 21,622 9,096
Total funds brought forward 212,515 106,538 - 319,053
309,957
Total funds carried forward 212,528 128,147 - 340,675 319,053

All activities relate to continuing operations.

44

Company number: 10704997 Charity Number: 1177565

mhs homes limited Statements of Comprehensive Income

mhs homes group Total Total
Note 2021 2020
£'000 £'000
Turnover 4 60,123 67,871
Cost of sales 4 (2,137) (10,905)
Operating costs 4 (30,493) (31,752)
Surplus on disposal of fixed assets 12 311 653
Operating surplus 27,804 25,867
Other interest receivable and similar income 13 31 33
Interest and financing costs 14 (11,412) (11,527)
Movement in fair value of investments 19 13 (1)
Movement in fair value of investmentproperties 18 4,085 (3,069)
Surplus before taxation 20,521 11,303
Taxationonsurplus 15 - -
Surplus for the year 20,521 11,303
Actuarial gain/(loss) on defined benefits pension scheme 26 1,101 (2,207)
Total comprehensive income for the financial year 21,622 9,096

mhs homes limited		 Total Total
Note 2021 2020
£'000 £'000
Turnover 4 52,777 60,912
Cost of sales 4 (2,137) (10,905)
Operating costs 4 (27,677) (29,173)
Surplus on disposal of fixed assets 12 4 227
Operating surplus 22,967 21,061
Other interest receivable and similar income 13 555 574
Interest and financing costs 14 (11,208) (11,159)
Movement in fair valueof investmentproperties 18 3,961 (2,837)
Surplus before taxation 16,275 7,639
Taxationonsurplus 15 - -
Surplus for the year 16,275 7,639
Actuarial gain/(loss) on defined benefits pension scheme 26 1,101 (2,207)
Total comprehensive income for the financial year 17,376 5,432

All activities relate to continuing operations. The notes on pages 48 to 78 form part of these financial statements.

45

Company number: 10704997 Charity Number: 1177565

mhs homes limited Statements of Financial Position

Note Group
2021
£'000		 Group
mhs
homes
mhs
homes
2020
2021
2020
£'000
£'000
£'000
Fixed assets
Tangible fixed asset - housing properties
16
Tangible fixed assets - other
17
Investment properties
18
Investments
19		 519,868
7,715
78,904
270		 486,654
417,879
401,340
8,023
1,915
2,078
72,630
73,080
66,930
257
-
-
Current assets
Stock and work in progress
20
Debtors – receivable within one year
21
Debtors – receivable after one year
21
Short term deposits
Cashandcash equivalents		 606,757
3,168
2,875
-
1,845
**36,401 **		 567,564
492,874
470,348
2,800
3,168
2,800

2,731
2,559
2,386
-
13,767
12,610
1,630
1,583
1,432
53,457
32,320
39,517
44,289 60,618
53,397
58,745
Creditors: amounts falling due within
one year
22		 (20,622) (21,144)
(18,205)
(20,190)
Net current assets 23,667 39,474
35,192
38,555
Total assets less current liabilities
Creditors: Amounts falling due after
more than one year:
Loans
23		 630,424
(279,412)		 607,038
528,066
508,903
(276,886)
(269,667)
(267,118)
Net assets excluding pension liability
Pension liability
26		 351,012
(10,337)		 330,152
258,399
241,785
(11,099)
(10,337)
(11,099)
Net assets 340,675 319,053
248,062
230,686
Capital and reserves
Income and expenditure reserve
Revaluation reserve		 128,147
212,528		 106,538
35,562
18,186
212,515
212,500
212,500
340,675 319,053
248,062
230,686

These financial statements were approved and authorised for issue by the Board on 22nd July 2021 and were signed on its behalf by:

A Hook Chief Executive

L Humphrey Company Secretary

R Cooper Chair

The notes on pages 48 to 78 form part of these financial statements.

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Company number: 10704997 Charity Number: 1177565

mhs homes limited Consolidated Statement of Cash Flows

mhs homes group

Note 2021 2020
Cash flows from operating activities £'000 £'000
Surplus for the financial year 20,521 11,303
Adjustments for:
Depreciation of fixed assets - housing properties 16 5,314 4,938
Loss on disposal of replaced components 168 139
Depreciation of fixed assets – other 17 426 494
Grant received in year (1,915) -
Impairment of assets 16 208 94
Interest payable and finance costs 11,412 11,527
Cost element of housing property sales in operating surplus 12 724 652
Decrease /(increase) in fair value of investment properties 18 (4,085) 3,069
Decrease /(increase) in fair value of investments 19 (13) 1
Decrease /(increase) in trade and other debtors (144) 1,297
Difference between net pension expense and cash contribution 338 514
Decrease in stocks 1,826 9,448
Increase in trade and other creditors 1,880 2,829
Interest received (31) (33)
Cash from operations 36,629 46,273
Net cash generated from operating activities 36,629 46,273
Cash flows from investing activities
Purchase of fixed assets – housing properties 16 (36,171) (32,510)
Purchase of fixed assets – investment properties 18 (4,605) (2,638)
Purchases of fixed assets – other 17 (118) (468)
Major repairs capitalised as components 16 (2,785) (2,439)
Receipt of grant 1,915 -
Interest received 13 31 33
Net cash from investing activities (41,733) (38,022)
Cash flows from financing activities
Interest paid (12,248) (11,827)
New loans 23 10,000 45,000
Repayment of loans 23 (9,000) (5,575)
Net cash used in financing activities (11,248) 27,598
Net increase in cash and cash equivalents (16,352) 35,849
Cash and cash equivalents at beginning of year 55,087 19,238
Cash and cash equivalents at end of year 38,735 55,087

The notes on page 48 to 78 form part of these financial statements.

47

mhs homes limited Notes forming part of the financial statements (continued)

1 Legal status

mhs homes is a Parent Charitable Company limited by guarantee incorporated in England and a registered charity. The registered office is Broadside, Leviathan Way, Chatham, Kent ME4 4LL. In the event of the charity being wound up the liability in respect of the guarantee is limited to £1 per member. There were nine members at 31 March 2021.

2 Accounting policies

The financial statements have been in prepared in accordance with UK accounting standards, including FRS102 and the Charities SORP (FRS 102), the Housing and Regeneration Act 2008, FRS 102 2018, which includes the amendments as a result of the Triennial Review 2017.

Due to the majority activities of the group being social housing the Parent and Group have also chosen to include information required under the Statement of Recommended Practice (SORP) for Registered Social Housing Providers 2018, “Accounting by registered social housing providers 2018” and the Accounting Direction for Private Registered Providers of Social Housing 2019 where it is judged that this information will aid the user of the accounts. The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies.

mhs homes is a public benefit entity as defined by FRS 102.

The financial statements are prepared in sterling which is the functional currency of the Group and rounded to the nearest thousand.

Parent Charity Company disclosure exemptions

In preparing the separate financial statements of the Parent Charitable Company, advantage has been taken of the following disclosure exemptions available in FRS 102:

The following principal accounting policies have been applied:

Basis of consolidation

The consolidated financial statements present the results of mhs homes limited and its subsidiaries (mhs commercial services, mhs community charity, Chatham Maritime K1 Construction, K1 Development, Lord Kitchener and Heart of Medway ) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full, mhs homes is required by statute to prepare the Group accounts.

Going Concern

After reviewing the budget of mhs homes for 2021/22 and a period beyond 12 months from the signing of the accounts, and based on normal business planning and control procedures, the Directors have a reasonable expectation that mhs homes has adequate resources to continue in operational existence for the foreseeable future. Future plans assume new borrowing of £55 million and the Group has available £70 million of funding across two revolving credit facilities, both fully charged and available to draw. The first of these facilities finishes in 2024 though we plan to put in place long term funding over the next 12 months. We also start the year with substantial cash reserves of £37 million in line with our cautious approach to treasury management

Income

Income is measured at the fair value of the consideration received or receivable. The group generates the following material income streams:

48

mhs homes limited Notes forming part of the financial statements (continued)

Rental income is recognised from the point when properties under development reach practical completion and are formally let; income from first tranche sales and other property is recognised at the point of legal completion of the sale. Income from revenue and capital grants is recognised when the conditions of the grant are met.

Supported housing schemes

The Group receives Supporting People grants from Medway Council. The grants receivable in the period as well as costs incurred by the Group in the provision of support services have been included in the Income and Expenditure Account.

Social Housing Grant

Where developments have been financed wholly or partly by social housing grant the amount of grant received has been included as income and recognised in turnover when it becomes receivable. Where social housing grant funded property is sold, the grant become recyclable and is transferred to a recycled capital grant fund until reinvested in a replacement property.

Service charges

The Group operates both the variable and fixed method for calculating and charging service charges to its tenants and leaseholders. Where variable service charges are used expenditure is recorded when a service is provided and charged to the relevant service charge account or to a sinking fund. Income is recorded based on the estimated amounts chargeable.

Management of units owned by others

Management fees receivable and reimbursed expenses are shown as income and included in other income. Costs of carrying out the management contracts and rechargeable expenses are included in operating costs.

Taxation

The charge for taxation is based on surpluses arising from non – charitable group companies for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes, to the extent that an asset or liability is expected to be payable or recoverable in the foreseeable future. An amount of taxable profit from the period before charitable status was confirmed was paid over to the subsidiary Heart of Medway and Charity as a qualifying charitable donation.

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

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

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

49

mhs homes limited Notes forming part of the financial statements (continued)

Value Added Tax

The Group charges Value Added Tax (VAT) on some of its income and is able to recover part of the VAT it incurs on expenditure. The financial statements include VAT to the extent that it is suffered by the Group and not recoverable from HM Revenue and Customs. Recoverable VAT arises from partially exempt activities and is credited to the Statement of Comprehensive Income.

Finance costs

Finance costs are charged to profit or loss over the term of the debt using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

Pension costs

The Group participates in two schemes.

Contributions to the Group’s defined contribution pension scheme are charged to profit or loss in the year which they become payable. Contributions to the Group’s defined benefit pension scheme are determined using actuarial valuations so as to spread the cost of pensions over employees' working lives and are based on triennial valuations. Details of the pension costs are disclosed in Note 26.

The difference between the fair value of the assets held in the group's defined benefit pension scheme and the scheme's liabilities measured on an actuarial basis using the projected unit method are recognised in the group's balance sheet as a pension asset or liability as appropriate. The carrying value of any resulting pension scheme asset is restricted to the extent that the Group is able to recover the surplus either through reduced contributions in the future or through refunds from the scheme.

Holiday pay accrual

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

Tangible fixed assets

Social housing properties

Social housing properties constructed or acquired (including land) on the open market since the date of transition to FRS 102 are stated at cost less depreciation and impairment (where applicable). The cost of social housing land and property represents their purchase price and any directly attributable costs of acquisition which may include an appropriate amount for colleagues’ costs and other costs of managing development. Directly attributable costs of acquisition include capitalised interest calculated, on a proportional basis. Where housing properties are under construction, finance costs are only capitalised where construction is on-going and has not been interrupted or terminated. Social housing properties in the course of construction, excluding the estimated cost of the element of shared ownership properties expected to be sold in first tranche, are included in properties under construction and held at cost less any impairment, and are transferred to completed properties when ready for letting

Deemed cost on transition to FRS 102 for Social housing properties

On transition to FRS 102 the Group took the option of carrying out a one-off valuation exercise of selected items of social housing properties and using that amount as deemed cost. To determine the deemed cost at 1 April 2014, the Group engaged independent valuation specialist Savills to value social housing properties on a EUV-SH basis. Social housing properties are subsequently measured at cost less depreciation.

Any difference between historic cost depreciation and depreciation calculated on deemed cost is transferred between the revaluation reserve and income and expenditure reserve.

50

mhs homes limited Notes forming part of the financial statements (continued)

Depreciation of social housing property

Social Housing land and property is split between land, structure and other major components that are expected to require replacement over time. Land is not depreciated on account of its indefinite useful economic life. The structure and other major components are depreciated over the determined average useful economic life as follows:

Description Economic useful life (years)
Structure – houses 100
Structure – flats 65
Kitchen 20
Bathroom and new central heating 30
Roofs 50
Boiler 15
Electrics 30
External windows & cold water mains 30
Fire door external 30
Adaptions 20
Shared ownership – flats 65
Shared ownership – houses 100

The costs of replacement or restoration of these components are capitalised and depreciated over the same average useful economic life. Assets under construction are not depreciated until they are completed and ready for use to ensure that they are depreciated only in periods in which economic benefits are expected to be consumed.

Shared ownership properties and staircasing

Under shared ownership arrangements, the Group disposes of a long lease to the occupier; the lease premium paid is for between 25% and 75% of the value. The occupier has the right to purchase further proportions up to 100% based on the market valuation of the property at the time each purchase transaction is completed. A shared ownership property comprises two assets: that to be disposed of in the first tranche sale, which is recorded as a current asset and stated at the lower of cost and net realisable value; and that retained by the Group , which is recorded as a fixed asset in the same manner as for general needs housing properties. Proceeds of sale for first tranches are accounted for as turnover in the income and expenditure account, with the apportioned cost being shown as cost of sales within operating results. Subsequent tranches sold (“staircasing”) are reflected in the statement of comprehensive income as a surplus or deficit on sale of housing properties.

Allocation of costs for mixed tenure and shared ownership developments

Costs are allocated to the appropriate tenure where it is possible to specify which tenure the expense relates to. Where it is not possible to relate costs to a specific tenure costs are allocated on a floor area or unit basis depending on the appropriateness for each scheme.

Tangible fixed assets – other

Other tangible fixed assets, other than investment properties, are stated at historical cost less accumulated depreciation and any accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

The Group adds to the carrying amount of an item of fixed assets the cost of replacing part of such an item when that cost is incurred if the replacement part is expected to provide incremental future benefits to the group. The carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to profit or loss during the period in which they are incurred.

51

mhs homes limited Notes forming part of the financial statements (continued)

Depreciation of other tangible fixed assets

Land is not depreciated. Depreciation on other assets is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method. The estimated useful lives range as follows:

Description Economic useful life (years)
Freehold premises 50
Fixtures and fittings 1-5
Other offices 50

Recycled Capital Grant Fund

On the occurrence of certain relevant events, primarily the sale of dwellings, Homes England can direct the Group to recycle capital grants or to make repayments of the recoverable amount. The Group adopts a policy of recycling, for which a separate fund is maintained. If unused within a three year period, it will be repayable to Homes England with interest. Any unused recycled capital grant held within the recycled capital grant fund, which it is anticipated will not be used within one year is disclosed in the balance sheet under "creditors due after more than one year". The remainder is disclosed under "creditors due within one year".

Investment properties

Investment properties consist of market rented properties, part of the head office rented to other organisations and other properties not held for social benefit. Investment properties are measured at fair value determined by external valuers in February 2020 and amended during the year based on movement in the Land Registry. No depreciation is provided. Changes in fair value are recognised in the statement of comprehensive income. Investment properties under construction are carried at cost.

Allocation of costs for mixed tenure and shared ownership developments

Costs are allocated to the appropriate tenure where it is possible to specify which tenure the expense relates to. Where it is not possible to relate costs to a specific tenure costs are allocated on a floor area or unit basis depending on the appropriateness for each scheme.

Stock

Stock represents work in progress and completed properties, including housing properties developed for transfer to other registered providers and shared ownership properties. For shared ownership properties the value held as stock is the estimated cost to be sold as a first tranche.

Materials are stated at the lower of cost and net realisable value. Cost comprises of materials and direct development overheads. Net realisable value is based on estimated sales proceeds after allowing for all further costs to completion and selling costs.

Debtors and creditors

Debtors and creditors with no stated interest rate and receivable or payable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the income statement in other operating expenses.

Recoverable amount of rental and other trade receivables

The Group estimates the recoverable value of rental and other receivables and impairs the debtor by appropriate amounts. When assessing the amount to impair it reviews the age profile of the debt, historical collection rates and the class of debt.

Cash and cash equivalents

Cash and cash equivalents in the Statement of Financial Position consists of cash at bank, in hand, deposits and short term investments with an original maturity of three months or less.

52

mhs homes limited Notes forming part of the financial statements (continued)

Loans and short-term deposits

All loans and short term deposits held by the Group are classified as basic financial instruments in accordance with FRS 102. These instruments are initially recorded at the transaction price less any transaction costs (historic cost), FRS 102 requires that basic financial instruments are subsequently measured at amortised cost, however the Group determined that the difference between the historic cost and amortised cost is not material and so these financial instruments are stated on the balance sheet at historic cost. Loans and investments which are payable or receivable within one year are not discounted .

Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the financial instrument's contractual obligations, rather than the financial instrument's legal form.

Leased assets: lessee

All leases are treated as operating leases. Their annual rentals are charged to profit or loss on a straight-line basis over the term of the lease. A review of all leases has been carried out and there are no finance leases.

Leasehold sinking funds

Unexpended amounts collected from leaseholders for major repairs on leasehold schemes and any interest received are included in creditors.

Reserves

Income received, and expenditure incurred, for restricted purposes is separately accounted for within restricted funds. Realised and unrealised gains and losses on assets held by these funds are also allocated to the fund. The revaluation reserve is created from surpluses on asset revaluation. Unrestricted reserves are subject to specific conditions imposed by the donors and are within the objectives of the Charity. The funds are transferred to the unrestricted when the specific requirements of the income are satisfied.

3 Judgements in applying accounting policies and key sources of estimation uncertainty

In preparing these financial statements, the key judgements have been made in respect of the following:

Whether there are indicators of impairment of the Group’s tangible assets. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset and where it is a component of a larger cash-generating unit, the viability and expected future performance of that unit.

Other key sources of estimation uncertainty.

Tangible fixed assets, other than investment properties, are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. For housing property assets, the assets are broken down into components based on management’s assessment of the properties. Individual useful economic lives are assigned to these components.

53

mhs homes limited Notes forming part of the financial statements (continued)

The Group’s market rented investment properties are measured at cost on initial recognition and subsequently carried at fair value determined by external valuers in February 2020 and amended during the year based on movement in the Land Registry.

The anticipated costs to complete on a development scheme based on anticipated construction cost, effective rate of interest on loans during the construction period, legal costs and other costs. Based on the costs to complete, they then determine the recoverability of the cost of properties developed for outright sale and/or land held for sale. This judgement is also based on the member’s best estimate of sales value based on economic conditions within the area of the development.

The appropriate allocation of costs for mixed tenure developments, and furthermore the allocation of costs relating to shared ownership between current and fixed assets.

The Director’s considered the measurement basis to determine the recoverable amount of assets where there are indicators of impairment based on EUV-SH or depreciated replacement cost. The members have also considered impairment based on their assumptions to define cash or asset generating units.

Rental and other trade receivables (debtors) (see note 21)

The estimate for receivables relates to the recoverability of the balances outstanding at year end. A review is performed on an individual debtor basis to consider whether each debt is recoverable.

Valuation of pension scheme (see note 26)

The estimates have been informed by an actuary and are presented in note 26. The note sets out the assumptions used by the actuary in determining the assets and liabilities of the pension scheme.

The critical underlying assumptions in relation to the estimate of the pension defined benefit scheme obligation such as standard rates of inflation, mortality, discount rate and anticipated future salary increases. Variations in these assumptions have the ability to significantly influence the value of the liability recorded and annual defined benefit expense.

54

mhs homes limited Notes forming part of the financial statements (continued)

4 Particulars of turnover, cost of sales, operating costs and operating surplus

mhs homes group
Turnover
2021
£'000		 Cost of
sales
2021
£'000		 Sale of
fixed
assets
Operating
costs
Operating
surplus/
(deficit)
2021
2021
2021
£'000
£'000
£'000
Social housing lettings (Note 5)
52,204
Other social housing activities
First tranche shared ownership sales
2,764
Development
-
Supporting people
388
Foyers
287
Managedproperties
59		 -
(2,137)
-
-
-
-
-
(27,745)
24,459

-
-
627

-
(220)
(220)

-
(744)
(356)

-
(203)
84

-
(79)
(20)
Charitable activities
55,702		 (2,137) -
(28,991)
24,574
Activities other than social housing
activities
Market rented properties
3,352
Other income
93
Other properties and commercial
activities
976		 -
-
-
-
(1,018)
2,334

-
-
93

-
(484)
492
Non charitable activities
4,421		 -
-
(1,502)
2,919
Surplus on disposal of Fixed Assets
-		 -
311
-
311
60,123 (2,137)
311
(30,493)
27,804
mhs homes group
Turnover
2020
£'000
Social housing lettings (Note 5)
49,869
Other social housing activities
First tranche shared ownership sales
13,131
Development
-
Supporting people
388
Foyers
290
Managed properties
58
Charitable activities
63,736
Activities other than social housing
Market rented properties
3,123
Charity projects
-
Other properties and commercial
activities
1,012
Non charitable activities
4,135
Surplus on disposal of Fixed Assets
-
67,871		 Cost of
sales
2020
£'000		 Sale of
fixed
assets
Operating
costs
Operating
surplus/
(deficit)
2020
2020
2020
£'000
£'000
£'000
-
(10,905)
-
-
-
-
-
(29,118)
20,751

-
-
2,226

-
(142)
(142)

-
(673)
(285)

-
(221)
69

-
(64)
(6)
(10,905)
-
(30,218)
22,613
-
-
-
-
(1,058)
2,065

-
-
-

-
(476)
536
-
-
(1,534)
2,601
- 653
-
653
(10,905)
653
(31,752)
25,867

55

mhs homes limited Notes forming part of the financial statements (continued)

4 Particulars of turnover, cost of sales, operating costs and operating surplus (continued)

mhs homes limited
Turnover
2021
£'000		 Cost of
Sales
2021
£'000		 Sale of
fixed
assets
Operating
costs
Operating
surplus/
(deficit)
2021
2021
2021
£'000
£'000
£'000
Social housing lettings (Note 5)
45,749
Other social housing activities
First tranche shared ownership sales
2,764
Development
-
Supporting people
188
Managedproperties
59		 -
(2,137)
-
-
-		 -
(25,569)
20,180
-
-
627
-
(220)
(220)
-
(420)
(232)
-
(79)
(20)
Charitable activities
48,760		 (2,137) -
(26,288)
20,335
Activities other than social housing
Market rented properties
3,184
Other income
83
Otherproperties and commercial
750		 -
-
-		 -
(905)
2,279
-
-
83
-
(484)
266
Non charitable activities
4,017		 - -
(1,389)
2,628
Surplus on disposal of Fixed Assets
-		 - 4
-
4
52,777 (2,137) 4
(27,677)
22,967
mhs homes limited
Turnover
2020
£'000		 Cost of
Sales
2020
£'000		 Sale of
fixed
assets
Operating
costs
Operating
surplus/
(deficit
2020
2020
2020
£'000
£'000
£'000
Social housing lettings (Note 5)
43,798
Other social housing activities
First tranche shared ownership sales
13,131
Development
-
Supporting people
188
Managedproperties
58		 -
(10,905)
-
-
-		 -
(27,138)
16,660
-
-
2,226
-
(142)
(142)
-
(356)
(168)
-
(64)
(6)
Charitable activities
57,175		 (10,905) -
(27,700)
18,570
Activities other than social housing
Market rented properties
2,945
Otherproperties andcommercial
792		 -
-		 -
(997)
1,948
-
(476)
316
Non charitable activities
3,737		 - -
(1,473)
2,264
Surplus on disposal of Fixed Assets
-		 - 227
-
227
60,912 (10,905) 227
(29,173)
21,061

Qualifying charitable donations

A charitable donation was made from K1 Construction to mhs homes of nil (2020: nil).

56

mhs homes limited Notes forming part of the financial statements (continued)

5 Income and expenditure from social housing lettings

mhs homes group
Affordable
rent
General
needs
£’000
£'000
Supported
housing
£'000		 Shared
ownership
Total
2021
Total
2020
£'000
£’000
£’000
Income
Rents net of identifiable service charges
4,582
40,493
Service charge income
119
66
Grant received
93
1,802
Other income
-
80*		 2,679
-
-
4		 2,003
49,757
47,522
262
447
411
21
1,916
1,826
-
84
110
Turnover from social housing lettings
4,794
42,441
Expenditure
Management
(525)
(4,350)
Service charge costs
(188)
(1,577)
Routine maintenance
(306)
(4,941)
Planned maintenance
(390)
(4,718)
Major repairs
(208)
(1,264)
Bad debts
(66)
(467)
Depreciation of housing properties:
- annual charge
(656)
(4,248)
- impairment
-
(208)
- accelerated on disposal of components
(3)
(165)		 2,683
(608)
(531)
(271)
(811)
(223)
(29)
-
-
-		 2,286
52,204
49,869
(161)
(5,644)
(5,513)
(397)
(2,693)
(2,694)
(4)
(5,522)
(5,523)
(1)
(5,920)
(5,527)
-
(1,695)
(4,261)
(14)
(576)
(400)
(415)
(5,319)
(4,967)
-
(208)
(94)
-
(168)
(139)
Operating expenditure on social housing lettings
(2,342)
(21,938)		 (2,473) (992)
(27,745)
(29,118)
Operating surplus on social housing lettings
2,452
20,503		 210 1,294
24,459
20,751
Void losses
(57)
(333)		 (90) (4)
(484)
(380)

*Rents disclosed in mhs homes are inclusive of service charges.

57

mhs homes limited Notes forming part of the financial statements (continued)

5
Income and expenditure from social housing lettings
mhs homes limited
Affordable
rent
General
needs
£’000
£'000
Supported
housing
£'000		 Shared
ownership
Total
2021
Total
2020
£'000
£’000
£’000
Income
Rents net of identifiable service charges
2,142
39,735
Grant
-
-
Other income
-
80*		 2,679
-
4		 1,109
45,665
43,689
-
-
-
-
84
109
Turnover from social housing lettings
2,142
39,815
Expenditure
Management
(197)
(4,639)
Service charge costs
(65)
(1,509)
Routine maintenance
(227)
(4,903)
Planned maintenance
(212)
(4,705)
Major repairs
(54)
(1,263)
Bad debts
(17)
(458)
Depreciation of housing properties:
- annual charge
-
(3,966)
- impairment
-
(208)
- accelerated on disposal of components
-
(165)		 2,683
(609)
(531)
(272)
(812)
(223)
(29)
-
-
-		 1,109
45,749
43,798
(122)
(5,567)
(5,549)
(135)
(2,240)
(2,289)
-
(5,402)
(5,337)
-
(5,729)
(5,373)
-
(1,540)
(4,169)
(12)
(516)
(360)
(236)
(4,202)
(3,846)
-
(208)
(94)
-
(165)
(121)
Operating expenditure on social housing lettings
(772)
(21,816)		 (2,476) (505)
(25,569)
(27,138)
Operating surplus on social housing lettings
1,370
17,999		 207 604
20,180
16,660
Void losses
(15)
(327)		 (90) -
(432)
(357)

*Rents charged in mhs homes are inclusive of service charges.

58

mhs homes limited Notes forming part of the financial statements (continued)

6 Expenditure on charitable activities

mhs homes group Depreciation and Direct activities Direct activities Support and governance Support and governance Total
amortisation costs
2021 2020 2021 2020 2021 2020 2021 2020
£'000 £'000 £'000 £'000 £'000 £'000 £’000 £’000
General needs (5,281) (4,703) (13,812) (14,684) (5,185) (5,167) (24,278) (24,554)
Supported housing - (213) (2,068) (3,123) (408) (422) (2,476) (3,758)
Shared ownership (415) (361) (359) (235) (217) (210) (991) (806)
Social housing lettings (5,696) (5,277) (16,239) (18,042) (5,810) (5,799) (27,745) (29,118)
Supporting People - - (744) (673) - - (744) (673)
Other expenditure - - (502) (427) - - (502) (427)
Total charitable expenditure included in
operating costs		 (5,696) (5,277) (17,485) (19,142) (5,810) (5,799) (28,991) (30,218)
First Tranche shared ownership sales - - (2,137) (10,905) - - (2,137) (10,905)
Operating surplus on social housing
lettings		 (5,696) (5,277) (19,622) (30,047) (5,810) (5,799) (31,128) (41,123)

59

mhs homes limited Notes forming part of the financial statements (continued)

6 Expenditure on charitable activities (continued)

mhs homes limited Depreciation and Direct activities Direct activities Support and governance Support and governance Total
amortisation costs
2021 2020 2021 2020 2021 2020 2021 2020
£'000 £'000 £'000 £'000 £'000 £'000 £’000 £’000
General needs (4,338) (3,746) (13,045) (14,030) (5,205) (5,201) (22,588) (22,977)
Supported housing - (213) (2,068) (3,123) (408) (422) (2,476) (3,758)
Shared ownership (236) (179) (90) (52) (179) (172) (505) (403)
Social housing lettings (4,574) (4,138) (15,203) (17,205) (5,792) (5,795) (25,569) (27,138)
Supporting people - - (420) (356) - - (420) (356)
Other expenditure - - (299) (206) - - (299) (206)
Total Charitable expenditure included in
operating costs		 (4,574) (4,138) (15,922) (17,767) (5,792) (5,795) (26,288) (27,700)
First tranche shared ownership sales - - (2,137) (10,905) - - (2,137) (10,905)
Operating surplus on social housing
lettings		 (4,574) (4,138) (18,059) (28,672) (5,792) (5,795) (28,425) (38,605)

60

mhs homes limited Notes forming part of the financial statements (continued)

7 Units of housing stock

Social housing
As at 1
April
2020
mhs homes limited
Transfers		 New
Build		 As at 31
March
2021
Demolished
Disposals
General needs housing
6,519
12
Sheltered schemes
532
-
Shared ownership
210
1
Intermediate rent
2
(1)
Social leaseholders
472
(4)
Foyers *
36
-		 129
-
22
-
-
-		 -
-
6,660
(51)
-
481
-
-
233
-
-
1
-
-
468
-
-
36
7,771
8
Heart of Medway
General needs housing
522
-
Shared ownership
250
(5)
Social leaseholders
14
5		 151
-
-
-		 (51)
-
7,879
-
-
522
-
(2)
243
-
(1)
18
786
-
Lord Kitchener
General needs housing
6
-
Non– Social housing
mhs homes limited
Managed freeholders
177
-
Market rent
352
(7)
Commercial lettings
46
-
Heart of Medway
Market rent
17
-
Residential leaseholders
-
-
Managed freeholders
2
-		 -
-
-
-
-
-
-
-		 -
(3)
783
-
6
-
-
177
-
(1)
344
-
-
46
-
-
17
-
-
-
-
-
2
Total owned
9,157
1		 151 (51)
(4)
9,254
Accommodation managed
84
-		 - -
84
Total managed
accommodation
9,241
1		 151 (51)
(4)
9,338
Units managed by other
associations
43
(1)		 - -
-
42
Total owned or
managed
accommodation
9,284
-		 151 (51)
(4)
9,380
Garages
1,449
-		 - -
-
1,449
*** Properties leased to Heart of Medway between 4 and 17 years** *** Properties leased to Heart of Medway between 4 and 17 years**
2021 2020 2021 2020
Units under construction: commitments contracted
Houses 128 70 64 70
Flats 112 203 76 149
Units under development: commitments approved but not contracted
Houses 56 113 30 49
Sheltered 119 75 119 75
Flats 45 121 33 85
460 582 322 428

61

mhs homes limited Notes forming part of the financial statements (continued)

8 Operating Surplus

8
Operating Surplus
Group Group mhs
homes		 mhs
homes
2021 2020 2021 2020
£'000 £’000 £’000 £'000
This is arrived at after charging:
Depreciation of housing properties:
-
annual charge		 5,319 4,959 4,202 3,838
Depreciation of other fixed assets:
-
annual charge		 426 494 279 347
Accelerated depreciation on replaced components 329 374 326 354
Operating leases 645 610 645 610
Auditors' remuneration (excluding VAT):
- fees payable to the group's auditor for the audit of 34
 34 34 34
the group's annual accounts
- fees for audit of accounts of subsidiary entities 14 16 14 -
- fees for other audit services - - - -
9
Employees
Group Group mhs mhs
homes homes
2021 2020 2021 2020
Number of employees 275 250 275 250
£’000 £’000 £’000 £’000
Wages and salaries 9,653 9,137 9,653 9,137
Social security costs 918 855 918 855
Cost of defined contribution scheme 368 328 368 328
Cost of defined benefit scheme(see note 26) 277
 307 277 307
11,216 10,627 11,216 10,627

The average number of employees (including Executive Management Team) expressed as full-time equivalents (calculated based on a standard working week of 37 hours) during the year was 275 (2020: 250).

A defined benefit (closed to new members) and a defined contribution pension scheme is operated by the Group on behalf of the employees. The assets of the scheme are held separately from those of the Group in an independently administered fund. Full details are contained in note 26.

62

mhs homes limited Notes forming part of the financial statements (continued)

10 Trustee remuneration

The trustees are defined as Directors under company law and are defined as the members of the Board of Management as disclosed on page 23.

Trustee Remuneration
£’000		 Expenses
£’000		 Remuneration
Committee		 Treasury
Committee		 Group Finance,
Risk and Audit
Committee
R Cooper 21 -
N Hopkins 12 -
R Kennedy 6 -
A Baker 3 -
K Franklin 9 -
M Miles Lea 9 -
R Christopher 9 1
M Mulligan 3 -
J Seager 9 -
A Campbell 6 -

The articles of association contain the clause “members may receive such reasonable and proper remuneration as the Boards members may from time to time decide having taken advice from an independent remuneration committee”

11 Senior executive remuneration

Group Group
2021 2020
£'000 £'000
Key Management personnel emoluments 551 521
Amounts paid to non-executive 86 76
Total expenses reimbursed to the directors not chargeable to - 2
income tax
637 599

The total amount payable to the Chief Executive, who was also the highest paid director in respect of emoluments, was £163,244 (2020: £158,875). Pension contributions of £45,753 (2020: £45,186) were made to Kent County Council Pension Fund on his behalf. As a member of the Kent County Council Pension Fund, the pension entitlement of the Chief Executive is identical to those of other members.

There were two directors (2020: two) in the Group's defined contribution pension scheme. Contributions were paid into the scheme on their behalf £26,862 (2020: £26,070).

The remuneration paid to staff (including Leadership Team) earning over £60,000 upwards:

Group Group
2021 2020
No. No.
£60,000 - £69,999 2 1
£70,000 - £79,999 7 3
£110,000 - £119,999 - -
£120,000 - £129,999 1 1
£130,000 - £139,999 1 1
£200,000 - £209,000 1 1

63

mhs homes limited Notes forming part of the financial statements (continued)

12 Surplus on disposal of fixed assets

Shared ownership Investment Total Total
staircasing properties
GROUP 2021 2021 2021 2020
£'000 £'000 £'000 £’000
Housing properties:
Disposal proceeds 809 225 1,034 1,311
Cost of disposals (489) (235) (724) (652)
Legaland other fees (2) 3 1 (6)
318 (7) 311 653
Shared ownership Investment Total Total
staircasing properties
mhs homes 2021 2021 2021 2020
£'000 £'000 £'000 £'000
Housing Properties:
Disposal proceeds 32 225 257 275
Cost of disposals (21) (235) (256) (46)
Legal and other fees - 3 3 (2)
11 (7) 4 227

13 Interest receivable and income from investments

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Interest receivable from group undertakings - - 529 541
Interest receivable and similar income 31 33 26 33
31 33 555 574

14 Interest payable and similar charges

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Bank loans and overdrafts 10,884 10,978 10,517 10,606
Other fees 531 453 523 453
11,415 11,431 11,040 11,059
Amortisation of issue costs 189 153 175 144
11,604 11,584 11,215 11,203
Net interest on defined pension liability (note 26) 258 362 258 362
Interest capitalised on construction of housing (450) (419) (265) (406)
11,412 11,527 11,208 11,159

64

mhs homes limited Notes forming part of the financial statements (continued)

15 Taxation on surplus on ordinary activities

The tax assessed for the year differs from the standard rate of corporation tax in the UK applied to surplus before tax. The differences are explained below:

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Surplus onordinary activities before tax 20,521 11,303 16,275 7,639
Surplus on ordinary activities at the standard rate of 3,899 2,147 3,092 1,451
corporation tax in the UK of 19% (2020 - 19%)
Effects of:
Group relief surrendered - (1) - -
Net income subject to charitable exemptions (3,843) (2,096) (3,092) (1,451)
Adjustments in respect of prior years- deferred tax (56) 14 - -
Adjust closingdeferred tax to average rate of 20% - (64) - -
Total tax credit for period - - - -

The aggregate current and deferred tax relating to items recognised in other comprehensive income is a nil charge (2020: nil charge).

65

mhs homes limited Notes forming part of the financial statements (continued)

16 Tangible fixed assets - housing properties General Shared General Shared Total
needs ownership needs ownership
mhs homes group completed completed under Under
construction construction
Cost or valuation: £'000 £'000 £'000 £’000 £’000
At 1 April 2020 467,413 46,038 22,349 4,430 540,230
Additions:
-
construction costs		 - - 30,652 3,996 34,648
-
replaced components		 2,745 40 - - 2,785
Completed schemes 21,876 2,773 (21,876) (2,773) -
Transfer from investment properties 2,181 - - - 2,181
Transfer to current assets - (221) - - (221)
Staircasing disposals - (504) - - (504)
Disposal of replaced components (497) - - - (497)
At 31 March 2021 493,718 48,126 31,125 5,653 578,622
Depreciation:
At 1 April 2020 50,439 1,219 - - 51,658
Charge for the year 4,932 387 - - 5,319
Eliminated on transfer to current assets - (5) - - (5)
Eliminated on staircasing disposals - (15) - - (15)
Disposal of replaced components (329) - - - (329)
At 31 March 2021 55,042 1,586 - - 56,628
Impairment:
At 1 April 2020 1,685 233 - - 1,918
Charge for theyear 208 - - - 208
At 31 March 2021 1,893 233 - - 2,126
Net book value at 31 March 2021 436,783 46,307 31,125 5,653 519,868
Net book value at 31 March 2020 415,289 44,586 22,349 4,430 486,654

66

mhs homes limited Notes forming part of the financial statements (continued)

16 Tangible fixed assets - housing properties (continued) General Shared General Shared Total
needs ownership needs ownership
mhs homes limited completed completed under Under
construction construction
Cost or valuation: £'000 £'000 £'000 £’000 £’000
At 1 April 2020 400,270 25,370 18,032 4,431 448,103
Additions:
-
construction costs		 - - 12,405 3,996 16,401
-
replaced components		 2,733 36 - - 2,769
Completed schemes 21,876 2,773 (21,876) (2,773) -
Transfer from investment properties 2,181 - - - 2,181
Transfer to current assets - (221) - - (221)
Staircasing disposals - (21) - - (21)
Disposal of replaced components (491) - - - (491)
At 31 March 2021 426,569 27,937 8,561 5,654 468,721
Depreciation:
At 1 April 2020 45,146 399 - - 45,545
Charge for the year 3,974 228 - - 4,202
Eliminated on transfer to current assets - (5) - - (5)
Disposal of replaced components (326) - - - (326)
At 31 March 2021 48,794 622 - - 49,416
Impairment:
At 1 April 2020 1,218 - - - 1,218
Charge for theyear 208 - - - 208
At 31 March 2021 1,426 - - - 1,426
Net book value at 31 March 2021 376,349 27,315 8,561 5,654 417,879
Net book value at 31 March 2020 353,906 24,971 18,032 4,431 401,340

67

mhs homes limited Notes forming part of the financial statements (continued)

16 Tangible fixed assets - Housing properties (continued)

Impairment

The Group considers schemes to represent separate cash generating units (CGUs) when assessing for impairment in accordance with the requirements of FRS 102 and SORP 2018.

During the year, a number of schemes were identified for regeneration, and the therefore the value attached to the structure of the buildings was written down to nil and treated as an impairment.

Valuation

On transition to FRS 102 the Group took the option of carrying out a one-off valuation exercise of selected items of social housing properties and using that amount as deemed cost. To determine the deemed cost at 1 April 2014, the Group engaged independent valuation specialist Savills to value social housing properties at the price at which a property can be sold on the open market assuming that it can only be used for the existing use, for the foreseeable future ( EUV-SH) basis. Social Housing properties are subsequently measured at cost less depreciation. Any difference between historic cost depreciation and depreciation calculated on deemed cost is transferred between the revaluation reserve and income and expenditure reserve. The estimated value in use of the social housing stock is estimated as below.

Group Group mhs
mhs
homes homes
2021 2020 2021 2020
£'million £'million £'million £'million
Estimated total EUV – SH 625 579 567 523
Estimated EUV- SH value of properties charged 510 497 493 480

The net book value of housing properties may be further analysed as:

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Freehold 517,325 485,018 417,009 401,402
Long leasehold 2,751 2,794 1,078 1,096
520,076 487,812 418,087 402,498
Interest capitalisation
Interest capitalisedin theyear 450 419 265 406
Cumulative interest capitalised 3,892 3,442 2,089 1,824
Rate used for capitalisation % 3.75 3.7 2.5 3.7
Works to properties
Improvements to existing properties capitalised 2,785 2,439 2,769 2,427
Major repairsexpenditure toincomeand 1,695 4,261 1,540 4,169
4,480 6,700 4,309 6,596

68

mhs homes limited Notes forming part of the financial statements (continued)

17 Other tangible fixed assets

mhs homes group
Other
offices
£'000		 Freehold
premises
Fixtures &
fittings
Total
£'000
£'000
£'000
2,882
6,520
17,384
2,120
6,520
16,622
-
118
118
2,120
6,638
16,740
685
5,940
8,660
624
5,940
8,599
29
250
426
653
6,190
9,025
1,467
448
7,715
1,496
580
8,023
Freehold
premises
Fixtures &
fittings
Total
£'000
£'000
£'000
Cost or valuation
At 1 April 2020
7,982
Restated
7,982
Additions
-
At 31 March 2021
7,982
Depreciation
At 1 April 2020
2,035
Restated
2,035
Charge foryear
147
At 31 March 2021
2,182
Net book value
At 31 March 2021
5,800
At 31 March 2020
5,947
mhs homes limited
Cost or valuation
At 1 April 2020
Restated
Additions		 2,882
6,522
9,404
2,120
6,522
8,642
-
116
116
At 31 March 2021 2,120
6,638
8,758
Depreciation
At 1 April 2020
Restated
Charge foryear		 685
5,940
6,625
624
5,940
6,564
29
250
279
At 31 March 2021 653
6,190
6,843
Net book value
At 31 March 2021		 1,467
448
1,915
At 31 March 2020 1,496
582
2,078

69

mhs homes limited Notes forming part of the financial statements (continued)

18 Investment Properties

mhs homes group
Head
Office
Buildings
£’000		 Market
Rent
completed
£'000		 Market
Rent
under
construction
Total
£'000
£'000
At 1 April 2020
2,554
Units converted to social housing
-
Property purchased
-
Construction costs
-
Property Disposals
-
Completed schemes
-
Revaluations
-		 69,930
(2,181)
872
-
(235)
-
4,085		 146
72,630
-
(2,181)
(872)
-
4,605
4,605
-
(235)
-
-
-
4,085
At 31 March 2021
2,554		 72,471 3,879
78,904
mhs homes limited Market
Rent
completed
£'000
Market
Rent
under
construction
Total
£'000
£'000
At 1 April 2020
Units converted to social housing
Property purchased
Construction costs
Property disposals
Completed schemes
Revaluations		 66,784
(2,181)
872
-
(235)
-
3,961		 146
66,930
-
(2,181)
(872)
-
4,605
4,605
-
(235)
-
-
-
3,961
At 31 March 2021 69,201 3,879
73,080

The Group’s market rented investment properties are measured at cost on initial recognition. In 2015 the fair value was determined by external valuers and updated based on the Land Registry in the subsequent years. In February 2020 the fair value was again determined by external valuers. No depreciation is provided. Changes in fair value are recognised in the statement of comprehensive income. The gain on revaluation of investment property arising of £4.085m (2020 – a loss of £3.069m) has been debited to the Statement of Comprehensive Income for the year.

Market value is defined as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion. If investment property had been accounted for under the historic cost accounting rules, the properties would have been measured as follows:

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Historic cost 46,246 46,481 42,839 43,074
Accumulated depreciation (5,700) (5,048) (4,787) (4,737)
40,546 41,433 38,052 38,337

70

mhs homes limited Notes forming part of the financial statements (continued)

19 Fixed asset investment

mhs homes group
Investments
£’000		 Listed
Investment
Other
Investment
Total
£'000
£'000
£'000
At 1 April 2020
185
Revaluation
-		 67
5
257
13
-
13
At 31 March 2021
185		 80
5
270
mhs homes limited
Heart of Medway Housing Association
mhs commercial services limited
Chatham Maritime K1 Developments Limited
Chatham Maritime K1 Construction Limited
Provisionagainst mhscommercialserviceslimited		 Total
Total
2021
2020
£
£
1
1
1,500,000
1,500,000
1
1
1
1
(1,500,000)
(1,500,000)
3
3

Details of subsidiary undertakings, associated undertakings and other investments

The group comprises of the following entities all incorporated in England

Subsidiary undertaking Nature of business Registered Registered
company *charity*
number society
number
Nature of Entities: Company
Proportion of ordinary share capital 100%
Chatham Maritime K1 Developments Limited Ownership of Head Office 03254705
Chatham Maritime K1 Construction Limited Development Activity 03254689
mhs commercial services Limited Not Active 02751669
Nature of Entity: Community Benefit Society
Proportion of voting rights 14%
Heart of Medway Housing Association Social Housing - 31076R
Nature of Entity: Charity
mhs community charity Limited2 Charitable Works 03714658 1080067
Nature of Entity: Trust
Lord Kitchener Memorial Homes Trust3 Social Housing 209751

1 mhs homes controls Heart of Medway through an inter group agreement.

  1. mhs community charity is a company limited by guarantee with mhs homes defined as the parent charitable company

3 Lord Kitchener is administered by mhs homes who were appointed a corporate trustee

71

mhs homes limited Notes forming part of the financial statements (continued)

20 Stock and Work in Progress

20
Stock and Work in Progress
Group Group mhs mhs
homes homes
2021 2020 2021 2020
£’000 £'000 £'000 £'000
Materials 34 40 34 40
Shared ownership under construction 3,045 2,339 3,045 2,339
Shared ownershipcompletedproperties 89 421 89 421
3,168 2,800 3,168 2,800

The amount taken to cost of sales in year was £1.8 million Group and £1.8 million mhs homes.

21 Debtors

21
Debtors
Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Due within one year
Rent and service charge arrears 3,127 1,972 2,826 1,778
Less:provision fordoubtfuldebts (900) (625) (800) (586)
2,227 1,347 2,026 1,192
Prepayments 303 452 303 453
Taxes and social security 41 41 - -
Other debtors 280 855 206 705
Loans to employees 24 36 24 36
2,875 2,731 2,559 2,386
Due after one year
Loan to Heart of Medway - - 1,659 232
Loan to Chatham Maritime K1 Development - - 11,916 12,378
Loan toLordKitchener - - **192 ** -
- - 13,767 12,610

22 Creditors: amounts falling due within one year

Group Group mhs mhs
homes homes
2020 2020 2021 2020
£'000 £'000 £'000 £'000
Bank overdrafts (unsecured) - - - -
Loans and borrowings (note 24) 4,700 6,498 4,700 6,498
Trade creditors 790 1,760 791 1,281
Rent in advance 1,131 788 1,017 548
Taxation and social security 48 209 48 209
Other creditors 566 557 559 551
Amounts due to subsidiaries - - 83 550
Accruals 9,909 7,935 7,832 7,397
Loan interest and fees due 1,675 1,790 1,635 1,748
Sinkingfund balances 1,803 1,607 1,540 1,408
20,622 21,144 18,205 20,190

72

mhs homes limited Notes forming part of the financial statements (continued)

23 Creditors: amounts falling due after more than one year

Group Restated mhs
Restated
Group homes mhs
homes
2021 2020 2021 h
2020
£'000 £'000 £'000 £'000
Loans (Note 24) 285,839 284,839 275,839 274,839
Less repayable within one year (4,700) (6,498) (4,700) (6,498)
Less issue costs (1,727) (1,455) (1,472) (1,223)
Loans and borrowings 279,412 276,886 269,667 267,118

24 Loans and borrowings : Maturity of Debt

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Less than one year 4,700 6,498 4,700 6,498
Between two and five years 32,600 45,791 32,600 45,791
In fiveyears or more 248,539 232,550 238,539 222,550
Loans and borrowings 285,839 284,839 275,839 274,839

During the year, £10 million was borrowed and £4 million of term debt and £5 million on a revolving credit facility were repaid. The debt is comprised of £176 million of bank loans, which are repaid by instalments up to 2039, and four private placements. Three of the private placements are in mhs homes and are due as noted below.

One private placement of £10 million is in Heart of Medway (repayable in 2038). Interest rates are fixed for more than one year on 79% of our debt, with the amounts spread across different funders and periods of time. At 31 March 2021 the Group had unused facilities of £70 million all of which is charged and available to draw. This covers all our funding requirements to a minimum of 2025.

25 Financial instruments

Information regarding the group’s exposure to and management of credit risk liquidity risk, market risk, cashflow interest rate risk, and foreign exchange risk is included in the Directors’ report. The carrying values of the Group and Association’s financial assets and liabilities measured at fair value through profit or loss are summarised by category below:

Group Group mhs mhs
homes homes
2021 2020 2021 2020
Financial assets £'000 £'000 £'000 £'000
Financial assets measured at fair value
- Investments 270 257 - -
Total financial assets 270 257 - -
Financial liabilities
Financial liabilities measured at amortised cost
- Loanspayable 279,412 276,886 269,667 267,118
Total financial liabilities 279,412 276,886 269,667 267,118

Financial assets measured at fair value comprise of fixed asset investments. Financial liabilities measured at amortised cost comprise of bank loans.

73

mhs homes limited Notes forming part of the financial statements (continued)

26 Pensions

Defined benefit pension scheme

mhs homes limited participates in the Kent County Council Local Government Superannuation Scheme. It provides benefits based on final pensionable pay with contributions being charged to the income and expenditure account so as to spread the cost of pensions over employees working lives with mhs homes limited . The employer contributions are determined by a qualified actuary whilst the employee contributions are fixed by regulations governing the scheme. The most recently completed full actuarial valuation was in November 2019 with the next formal valuation due in 2022. The contribution rate for the Group was 25.7% (2020:25.7%) for employer contributions and 5.5% to 11.4% (2020:5.5% to 11.4%) for employee contributions. The most recent actuarial valuation confirmed that the employer contribution would stay at 25.7% till 2022. The pension contribution for the year for the Kent County Council Local Government Superannuation Scheme amounted to £363,231 (2020: £399,437). The scheme was withdrawn from new staff in 2005 and a defined contribution scheme offered in its place.

Pension benefits depend upon age, length of service and salary level.

A valuation for the purposes of the accounts is provided annually by a qualified independent actuary.

There were no changes to the scheme during the year and no amounts owing to the scheme at the year end.

31 March 31 March
2021 2020
£'000 £'000
Reconciliation of present value of plan liabilities
At the beginning of the year 49,087 50,775
Current service cost 372 471
Interest cost 1,136 1,199
Change in financial assumptions 10,550 (3,882)
Change in demographic assumptions (560) (469)
Experience loss (739) 2,428
Benefits paid net of transfers in (1,606) (1,676)
Past service costs, including curtailments - 184
Contributions by scheme participants 88 97
Unfunded pensionpayments (41) (40)
At the end of the year 58,287 49,087
31 March 31 March
2021 2020
Reconciliation of fair value of plan assets
At the beginning of the year 37,988 42,397
Interest on assets 878 1,003
Return on assets less interest 10,352 (4,109)
Other actuarial losses - (21)
Administration expenses (31) (25)
Contributions by employer excluding unfunded 322 362
Contributions by members 88 97
Benefits paid (1,647) (1,716)
At the end of the year 47,950 37,988

74

mhs homes limited Notes forming part of the financial statements (continued)

26 Pensions (continued) 31 March
2021
31 March
2020
£’000
£’000
Fair value of plan assets
Present valueofplan liabilities		 47,950
37,988
57,674
48,492
Deficit 9,724
10,504
Present value of unfunded obligation 613
595
Net pension scheme liability 10,337
11,099
Amounts recognised in other comprehensive income are as
follows:		 31 March
2021
31 March
2020
£’000
£’000
Included in administrative expenses:
Service cost
Net interest on the defined liability
Administration expenses		 372
655
258
196
31
25
661
876
Analysis of actuarial gain recognised in other comprehensive
income		 31 March
2021
31 March
2020
£’000
£’000
Actual return less expected return on fund assets
Experience gains on defined benefit obligation
Change in demographic assumptions
Other actuarial gains on assets
Changes in financial assumptions		 10,352
(4,109)
739
(2,428)
560
469
-
(21)
(10,550)
3,882
1,101
(2,207)
31 March 2021
31 March 2020
£’000
%
£’000
%
Composition of plan assets
Equities
30,876
64
23,371
61
Gilts
285
1
295
1
Other bonds
5,988
13
4,951
13
Property
4,963
10
5,169
14
Cash
2,378
5
994
3
Target returnportfolio
3,460
7
3,208
8
Total plan assets
47,950
100
37,988
100

75

mhs homes limited Notes forming part of the financial statements (continued)

26 Pensions (continued)

Principal actuarial assumptions used at the balance sheet date

31 March 31 March 31 March 31 March
2021 2020 2019 2018
% % % %
Discount rates 2.00 2.35 2.40 2.55
Future salary increases 3.85 3.00 3.95 3.85
Future pension increases 2.85 2.00 2.45 2.35
Inflation assumption - 2.00 2.45 2.35

Defined Contribution Scheme

mhs homes limited also operates a defined contribution scheme administered by Aviva. The employer’s contributions, at a rate of between 1% to 10%, were £368,352 (2020: £328,521). At 31 March 2021 the number of staff participating in the scheme was 303 (2020: 270). There were no contributions outstanding or prepaid as at 31 March 2021.

27 Contingent liabilities

mhs homes has guaranteed construction contracts for Heart of Medway and K1 Construction. At the year end the liabilities covered by these guarantees are £23,216,000 (2020: £23,216,000).

The Group receives grant from Homes England, which is used to fund the acquisition and development of housing properties and their components. The Group has a future obligation to recycle such grant once the properties are disposed of. At 31 March 2021, the value of grant received in respect of these properties that had not been disposed of was £32,777,000 (2020: £30,723,000).

As the timing of any future disposal is uncertain, no provision has been recognised in these financial statements.

Total Social Housing Grant received or Group Group mhs mhs
receivable to date is as follows: homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Recycled Capital Grant 46 183 - 51
CapitalGrant 32,743 30,723 16,214 16,195
Total Grant 32,789 30,906 16,214 16,246

.

76

mhs homes limited Notes forming part of the financial statements (continued)

28 Operating leases

The Group and the Association had minimum lease payments under non-cancellable operating leases as set out below:

Amounts payable as Lessee Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Not later than one year 76 354 76 354
Later than one year and not later than five 569 256 569 256
Later than fiveyears - - - -
Total 645 610 645 610

Amounts receivable under operating leases as lessor

2021 2020
£’000 £’000
Not later than one year 224 224
Later than oneyear not later than fiveyears 392 617
616 841

29 Capital commitments

Group Group mhs mhs
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Commitments contracted
New build 33,189 28,661 15,596 21,797
Commitments approved by the board but not
contracted
New build 53,048 62,020 42,880 34,534
86,237 90,681 58,476 56,331

Capital commitments for the Group and Association will be funded as follows:

Group Group mhs mhs
homes homes
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Social Housing Grant 6,591 3,351 3,711 190
New loans 17,200 17,127 4,200 10,000
Sales of properties 10,683 9,534 10,683 9,534
Existingreserves 51,763 60,669 39,882 36,607
86,237 90,681 58,476 56,331

77

mhs homes limited Notes forming part of the financial statements (continued)

30 Related party disclosures

The Board includes two tenant members who hold a tenancy agreement on normal terms and cannot use their position to their advantage. The rent charged for the year was £10,926.16 (2020: £10,487) and the tenants had arrears balances of nil at the 31 March 2021 (31 March 2020: arrears balance nil).

The Association provides management services, other services and loans to its subsidiaries. The Association also receives charges from its subsidiaries. The quantum and basis of those charges is set out below.

Management charges
Interest charges
Payable to mhs homes by
2021
2020
2021
2020
subsidiaries:
£'000
£'000
£'000
£'000		 Management charges
Interest charges
Payable to mhs homes by
2021
2020
2021
2020
subsidiaries:
£'000
£'000
£'000
£'000
Heart of Medway
461
K1 Development
-		 451
-
-
-
529
541
461 451
529
541

Intra-group management fees are receivable by the Association from subsidiaries to cover the running costs that the Association incurs on behalf of managing its subsidiaries. The management fee is calculated on a department basis, with varying methods of allocation. The costs are calculated by reference to the Housemark Benchmarking report. Intra-group interest is charged by the Association to its subsidiaries at the rates incurred by the Association on its bank loans.

Entity granting Entity receiving Interest Opening Movement Closing
loan loan Rate** balance balance
£’000 £'000 £'000
mhs homes Heart of Medway* - 231 1,428 1,659
mhshomes K1 Development* 4.36% 12,520 (304) 12,216
12,751 1,124 13,875

Key Terms of repayment

** Average rate charged across the year

mhs homes provided parent guarantees as disclosed in note 30. Kent County Council Pension Scheme is a related party, refer to note 26 for transactions posted during the year.

31 Capital and reserves

The revaluation reserve contains the unrealised gains of £212.5 million (2020: £212.5 million) in respect of fixed assets for which the deemed cost option was taken.

32 Net debt reconciliation

Group At 1 April Cash Non-cash At 31
2020 flows movement March
2021
£'000 £'000 £'000 £'000
Bank overdraft - - - -
Short term deposits 1,630 216 - 1,846
Cashatbank 53,457 (17,056) - 36,401
Cash and cash equivalents 55,087 (16,840) - 38,247
Loans and borrowings (284,839) (1,000) - (285,839)
Net debt (229,752) (17,840) - (247,592)

78