## **Year ended 31 March 2022**
mhs homes limited Private company limited by guarantee | Company number: 10704997 Registered Charity | Registration number: 1177565
## **CONTENTS PAGE**
## **Page Contents**
- 1 Chair’s Statement
- 2 mhs at a glance
- 4 Strategic Report
- 16 Value for Money Statement
- 21 Trustees’ Annual Report
- 30 Assessment of the Effectiveness of Internal Controls
- 33 Independent Auditor's Report
- 37 Consolidated Statement of Financial Activities
- 38 Consolidated and mhs homes limited Statement of Comprehensive Income
- 39 Consolidated and mhs homes limited Statement of Financial Position
- 40 Consolidated Statement of Cash Flows 41 - 71 Notes forming part of the Financial Statements
**CHAIR’S INTRODUCTION TO THE FINANCIAL STATEMENTS**
My involvement with mhs homes, stretching back to 2016, comes to an end this year. As I look back there are many achievements to be proud of, none of which would have happened without the hard work and dedication of colleagues. Not least, we’ve added almost 1,000 new homes over this time, providing families with an affordable, secure and safe home.
The safety of our customers remains our chief concern and I can think of no better example than our commitment to the “Building a Safer Future Charter”, which puts people’s safety first during the design, construction, refurbishment and occupation of their homes.
We’ve started our journey to net zero carbon, with over 65% of our properties already being rated at EPC “C”, and we are investing over £15 million to ensure that all properties reach this level before 2030. Our first properties at EPC rating “A”, located in Lenham and shown below, were handed over this year. We are piloting low cost solutions that could both reduce the carbon footprint of heating customers’ homes whilst reducing energy bills. In this time of significant energy price increases these are meaningful ways that will help support our customers through the “cost of living crisis”.
Our commitment to the green agenda is wider than our properties, for example we are introducing electrical vehicles for the first time.
As ever my amazing colleagues continue to embody the values of mhs homes and their continuing response during another difficult year, with support for customers front and centre in their thinking, continues to inspire. The commitment to our community can be seen through such events as “Day for Kent”, where everyone spends a day helping in the community, with activities ranging
from helping in food banks to painting community centres. Thanks to support across the whole organisation, we raised £30,000 for our nominated charity, CALM.
We continue to monitor the rise in inflation and with it the impact on our customer. We will balance the necessity for healthy surpluses, which allows us to invest in both new and existing properties, against keeping rents affordable. Looking forward financial strength is a prerequisite when maintaining our properties, not least meeting energy efficiency targets, which will reduce both our carbon footprint and customers energy bills. Whilst building new homes requires new borrowing, and we need strong financial results to support and attract these loans. However, we will always set the rents that underpin this to be affordable and in line with our charitable aims.
I would like to highlight again our thanks to our customers, partners, and colleagues for all that has been achieved over this last year, and I’m especially grateful to our frontline team members for their continuing 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 21 July 2022
mhs homes limited
Page 1
## **mhs homes AT A GLANCE**
mhs homes limited (“mhs homes”) was established in 1990 following a stock transfer from the local authority. We are the largest independent social landlord, being registered with the Charity Commission rather than the Regulator of Social Housing. Our objectives are to provide social housing in Kent and all services linked to this provision, with all surpluses reinvested into building more new homes, existing properties and supporting local communities. It is the parent body of mhs homes group (“the Group”).
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 greater 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 9,522 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.
Our ultimate ambition is to help end the housing crisis in North Kent by providing safe and sustainable homes.
## **Our properties are spread over North Kent as shown below.**
mhs homes limited
Page 2
## **mhs homes AT A GLANCE**
## **Financial Highlights**
||**2021/22**|**2020/21**|
|---|---|---|
|Turnover|£64.7 million|£60.1 million|
|Operating Surplus|£27.8 million|£27.8 million|
|Surplus|£22.7 million|£20.5 million|
|EBITDA MRI1|£28.1 million|£28.6 million|
|EBITDA – MRI1Margin to turnover|43%|48%|
|Net Debt|£254.9 million|£247.6 million|
|EBITDA - MRI1/ Interest Cover|2.4|2.5|
> 1 EBITDA – MRI: Earnings before interest, tax, depreciation and amortisation, capitalised major repairs expenditure included
## **Operational Highlights**
||**2021/22**|**2020/21**|
|---|---|---|
|Total Stock owned and managed|9,522|9,380|
|% Homes at Decent Homes Standard|99.1%|99.9%|
|% Homes at SAP rating C or above|65.2%|60.4%|
|New Homes brought into management|181|151|
|New Developments started on site|145|259|
|Customer Satisfaction|67%|65%|
|% of staff proud to work for mhs homes|94%|87%|
**Our new development at Yeoman House -** a great example of regeneration. A new 54 supported housing scheme replaced a 22 unit block built in the 1970’s.
mhs homes limited
Page 3
**STRATEGIC REVIEW: AN OVERVIEW OF 2021/22 RESULTS**
As a charity we have a responsibility to use our resources effectively. Whilst all surpluses are reinvested in existing and new homes, we achieve this whilst keeping our rents affordable, with further detail on page 10 on our rent levels. The financial results for the year highlight the continuing financial strength of **the Group** with a surplus before tax and fair value adjustments of £16.5 million (2021: £16.4 million). This in turn allowed over £28 million to be invested in new homes, resulting in 181 new homes being brought into management and over 400 anticipated over the next three years.
**----- Start of picture text -----**
£'million
Sale of shared ownership Rental Income
80
70
60
50
40
30
20
10
2018 2019 2020 2021 2022
**----- End of picture text -----**
**Turnover** increased in the year as additional rental income of c£2 million, through a combination of rent increases and new properties, along with a similar increase in sales on first tranche shared ownership properties. During the year we sold 41 new shared ownership properties compared with 26 in the year before. Sales demand remains strong with no completed properties remaining unsold at the year end.
Despite an increase in expenditure in major repairs of over £2 million, the overall operating surplus was slightly higher than in the previous year, helped by the surplus on property sales and sales of first tranche shared ownership being over £1.5 million higher than in 2020/1. The majority of the surplus continues to be derived from low risk social housing activities.
**----- Start of picture text -----**
30
£'million
25
20
15
10
5
0
2018 2019 2020 2021 2022
Market rent and other non charitable activities
Property Sales
Social Housing Activities
**----- End of picture text -----**
mhs homes limited
Page 4
**STRATEGIC REVIEW: AN OVERVIEW OF 2021/22 RESULTS**
**Movement from Year to Year:** the movement in surplus from last year to the current is shown below
|below||
|---|---|
||**£’ million**|
|Increase in income from social housing lettings|**2.2**|
|Increase in major repairs expenditure|**(2.2)**|
|Increases in depreciation & impairment|**(0.1)**|
|Other increases in operating costs|**(1.0)**|
|Increase in surplus from first tranche shared ownership sales|**0.6**|
|**Reduced surplus from social housing activities**|**(0.5)**|
|Increase in surplus from sale of other fixed assets|**0.8**|
|Reduction in surplus from non-charitable activities|**(0.3)**|
|**Change in operating surplus**|**-**|
**Investment Properties:** Over the years the Group has built up an investment portfolio of 361 properties rented to tenants at market rent. These are a valuable investment and produce a return to our original cost of 4.5% (2021: 4.1%). 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 £49 million in these properties, which are now estimated to be worth £80 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.
**Interest payable** costs are staying level despite increased long term debt. This has enabled the ratio of surpluses to interest costs (“interest cover”) to stay consistently above two even as our debt increases.
**----- Start of picture text -----**
Gross Interest Costs adding back capatilsed
interest
3.0 14,000
2.5 12,000
10,000
2.0
8,000
1.5
6,000
1.0
4,000
0.5 2,000
- 0
2018 2019 2020 2021 2022
Interst Cover Gross Interest excl Capatilsed interest
**----- End of picture text -----**
mhs homes limited
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**STRATEGIC REVIEW: OUR STRATEGIC PLAN 2021 TO 2024**
In March 2021 an ambitious new three year strategic plan was approved by the Board. Our strategic priorities meet the challenges of the moment, and these are described below along with some of the key targets, along with our progress after the first year of the plan.
## **Provide safe and sustainable homes**
We will have built 660 new homes. We have identified 481 homes to complete by March 2024, with a further 109 early in 2024/25. Have over 65% of homes at EPC C rating or This target is already met and are we well on course above. to meet the 2030 target in time.
Prioritise our Building Safety Programme. A programme is in place, with all surveys of properties to be completed by the end of this calendar year.
## **Be a caring and visible landlord**
Offering great digital services that are well We are ahead of target with over 65% of customers used by our customers. joining our digital offering. Deliver year on year performance increases Progress was not as anticipated; however recent in operational areas. changes are showing improvements.
## **Focus on the customer’s voice and community leadership**
Deliver our Building Safety Programme We have a comprehensive customer communication around our customers so that they feel safe programme to keep customers well informed. and informed.
Make sure all major new contracts include All contracts over £100,000 include social values social value outputs that benefit our local such as apprentices, career days and work communities. experience. Have in place a Fuel Poverty Action Plan to Good progress was made with a strategy presented assist customers who are fuel poor to Board in May 2022 that we can take forward in 2022/23.
Increases the number and diversity of We successfully set up the customer engagement customers that actively engage with us group that helped us to improve services.
## **Have a talented, digitally enabled and customer focused workforce**
90% of colleagues saying that they’re proud The most recent survey showed 94% of colleagues to work for us. were proud to work for mhs homes. Be a We Invest in Wellbeing ‘Gold’ and a We Excellent progress with every confidence of meeting Invest in People ‘Platinum’ organisation. our targets. Be an Accredited Living Wage employer This was achieved in January 2022
## **Have organisational resilience and agility**
Conduct a governance review and adopt the These were successfully completed with appropriate RACE Equality Code 2020. actions plans in place.
mhs homes limited
Page 6
## **STRATEGIC REVIEW: TREASURY**
The treasury management for the Group is governed by a policy and strategy regularly reviewed and approved by the Board with the Group Treasury Committee monitoring activities and making recommendations to the Board.
During the year £10 million was borrowed at fixed rates till 2055, whilst £4.7 million of variable rate debt was repaid. At the end of the year the Group had substantial liquidity with: -
- £70 million of revolving credit facilities charged and available to draw
- £10 million of fixed rate long term debt arranged for September 2022
- £3 million of cash
is available to the Group.
## **Interest rates fixed**
A key risk is our exposure to interest rate increases, which is mitigated by having only £56 million (19%) of debt floating for less than one year. This compares with £61 million (22%) last year.
**----- Start of picture text -----**
£118
Fixed for 10 or more years
Million
Fixed for 5 - 10 years £56 Million
£41
Fixed for up to 5 years
Million
£61
Floating rate
Million
0 50 100 150
**----- End of picture text -----**
**----- Start of picture text -----**
Repayment profile
120
100
80
60
40
20
0
Within 1 Within 2- 5 Within 6 - Within 10 More than
year years 10 years to 20 years 20 years
£' million
**----- End of picture text -----**
The Group has 13%% (2021:13%) of the total debt due for repayment in the next five years.
Our average cost of borrowing continues to fall despite the recent increase in interest rates, as competitively priced long term fixed rate debt is added to our debt portfolio.
**----- Start of picture text -----**
Average interest costs
5.0%
4.0%
3.0%
2018 2019 2020 2021 2022
**----- End of picture text -----**
mhs homes limited
Page 7
## **STRATEGIC REVIEW: 5 YEAR FINANCIAL REVIEW**
The last 5 years financial performance along with key ratios is summarised below
|**Year Ending 31 March**|**2018**|**2019**|**2020**|**2021**|**2022**|
|---|---|---|---|---|---|
||**£’m**|**£’m**|**£’m**|**£’m**|**£’m**|
|_Excluding 1st tranche shared ownership sales_||||||
|Turnover|50|54|55|57|60|
|Expenditure|27|28|32|31|34|
|**Surplus on rents**|**23**|**26**|**23**|**26**|**26**|
|Surplus on 1sttranche sales|1|1|2|1|1|
|Disposal of assets|-|1|1|1|1|
|**Operating surplus**|**24**|**28**|**26**|**28**|**28**|
|Net interest cost|13|11|12|11|11|
|**Surplus for the year before**
**tax and fair value**|**11**|**17**|**14**|**17**|**17**|
|Net fixed assets *|233|256|285|316|336|
|Investments|70|74|72|79|87|
|Net current assets|1|14|39|24|25|
||**304**|**344**|**396**|**418**|**448**|
|Social housing grant *|27|29|31|33|34|
|Creditors: > than one year|215|239|278|279|285|
|Pension liability|11|8|11|10|9|
||**253**|**276**|**320**|**322**|**328**|
|**Total reserves less social**
**housing grant**|**51**|**68**|**76**|**98**|**120**|
|**Financial Performance**||||||
|EBITDA-MRI*: Turnover|49%|45%|40%|48%|43%|
|EBITDA-MRI*: Turnover excluding
shared ownership|51%|48%|46%|49%|45%|
|Ratio of Debt: EBITDA-MRI*|8.1|8.6|8.5|8.7|9.1|
|Ratio of EBITDA-MRI*: Interest
Payable|2.4|2.5|2.3|2.4|2.4|
|**Other Key Ratios**||||||
|Voids: net rental income|0.7%|0.6%|0.8%|1.0%|0.8%|
|Bad Debt: net rental income|0.9%|0.6%|0.8%|1.1%|0.5%|
* less revaluation reserve
mhs homes limited
Page 8
## **STRATEGIC REVIEW: FUTURE PLANNING**
**The Group** is forecasting developing over 700 new homes in the next 5 years, with a spend of almost £180 million, funded broadly half and half between new borrowings and surpluses.
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 prudent approach to treasury management.
Our results are stress-tested against a number of different scenarios. These show that our covenants are met, even if interest rates rise over the long term to 8% or rental income is reduced by a quarter.
The financial ratios below show the ongoing financial strength of the Group.
|**Group Ratio**|**2023**|**2023**|**2024**|**2025**|**2026**|
|---|---|---|---|---|---|
|EBITDA* MRI: Turnover|39%|35%|38%|39%|38%|
|Ratio of Debt: EBITA-MRI*|12|12|12|12|12|
|EBITDA-MRI*: Interest Payable %|2.1|1.8|1.8|1.8|1.8|
In common with many social landlords, we are continuing to investigate our buildings to ensure that they are safe and meet all current building safety requirements. Despite much of this work having been completed there a risk that some of these margins may reduce if additional building safety work is required. The Board is clear on the importance of building and customer safety and has been clear that cost will never be a barrier to the work required and therefore we will continue to prioritise our Building Safety Programme. We will also strive to be an exemplar by achieving the “Building A Safe Future Charter 'Champion” status. Our long term financial planning will continue to ensure that there are sufficient resources to proactively manage our assets, so all our homes continue to meet the Decent Homes Standard.
mhs homes limited
Page 9
**STRATEGIC REVIEW: STREAMLINED ENERGY AND CARBON REPORT**
The Streamlined Energy and Carbon Report (SECR) framework is a mandatory UK-wide energy and carbon reporting scheme, implemented to create a straightforward carbon reporting framework and our results, which cover our head offices, communal areas in our properties and vehicle fleet, are shown below.
|||tCO2e||kWh: kilowatt hours|kWh: kilowatt hours|
|---|---|---|---|---|---|
||2020/21||2021/22|2020/21|2021/22|
|Electricity|-||8|2,178,014|2,405,323|
|Natural Gas|835||792|4,539,536|4,323,898|
|Direct Transport|254||281|1,057,252|1,186,881|
|Total|**1,089**||**1,081**|**9,174,863**|**8,011,141**|
## **The intensity Ratio**
The Intensity ratio decreased from 25.6 Tco2e/£m to 17.03 Tco2e/£m. This decrease is due both to the decrease in emissions and increase in turnover.
## **Energy Efficiency Actions taken during the year**
mhs homes continues to procure the majority of electricity from renewable and green tariffs, hence the small amount of CO2 released compared to that from other energy sources. We are focused on having all properties at a minimum EPC rating C by, at the latest, 2030 and are confident of achieving this target.
**----- Start of picture text -----**
Distribution of EPC ratings of existing homes
A
B
C
D
E
F
G
Unknown
0 1,000 2,000 3,000 4,000 5,000
**----- End of picture text -----**
We are taking the following actions to further reduce our impact on the environment: -
- We continue to invest to increase energy efficiency with over £15 million included in our long term financial projections to upgrade properties.
- All new homes commissioned from April 2021 will be built to a minimum of EPC rating B. During the year we also took handover of 37 properties at EPC rating A.
- Trial retrofit technologies to increase the sustainability of existing homes.
- A new fleet of electrical vehicles will be introduced this year, reducing CO2 emissions from vehicles by over one quarter and our new gas and water hygiene contracts includes an agreed reduction of 5% of vehicle carbon emissions year on year to 50% by the end of the contract.
- The amount of waste materials from our repairs that is recycled will be increased.
- The impact of sourcing materials and evaluating our contractors supply chains is included in our tender processes.
mhs homes limited
Page 10
## **STRATEGIC REVIEW: SOCIAL IMPACT**
## **Social**
Our customers' wellbeing remains our greatest priority and therefore we will: -
- Ensure that at least 30% of our lettings will be to homeless households.
- Launch and embed a new Tenancy Support Programme to help customers with the cost of living crisis and to provide better outcomes for customers through more effective multi-agency interventions on domestic abuse, mental health, safeguarding, crime on our estates, anti-social behaviour and hate crime.
- Implement the RACE Equality Action Plan and undertake the HDN Diversity Network Accreditation to ensure stronger focus and commitment to equality, diversity and inclusion in relation to our customers’ community and business.
-
- Make sure 90% of customers are satisfied that their views are taken into account.
- Have in place a Fuel Poverty Action Plan to assist customers who are fuel poor.
- Social Value is included in all procurement over £100,000 with activities ranging from use of apprentices to painting of community centres.
As a charitable social housing provider our properties must be affordable whilst generating sufficient resources to invest in both existing and new properties. We therefore monitor our rents closely against both market 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.
**----- Start of picture text -----**
Maidstone Medway
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
1 Bed 2 Bed 3 Bed 4 Bed 1 Bed 2 Bed 3 Bed 4 Bed
% of Market Rent % of LHA % of Market Rent % of LHA
**----- End of picture text -----**
Over the year there was a significant increase in the number of customers claiming Universal Credit (UC) to 2,801 (2021: 2,115). The use of Alternative Payment Arrangement (APA) continues to increase, with the percentage of customers on APA’s increasing from 27% to 30% of UC claimants.
mhs homes limited
Page 11
## **STRATEGIC REVIEW: RISK MANAGEMENT**
The key strategic risks are summarised in the heat map below with the key controls summarised in the table on the next page.
**----- Start of picture text -----**
Almost
5
Certain
Likely 4
Possible 3 8 9 2 3 4 1
Unlikely 2 6 7 5
Rare 1
1 2 3 4 5
Insignificant Minor Moderate Major Catastrophic
Impact
Likelihood
**----- End of picture text -----**
- 1 **Failure to maintain a talented, diverse and engaged workforce**
- **Failure to ensure tenants are safe at home and colleagues are safe at**
- 2 **work**
- **Failure to invest sufficiently in current properties to ensure the safety**
- 3 **and quality of our housing stock**
- 4 **Failure to meet operational performance**
- **Failure to maintain long-term financial viability and failure to meet**
- 5 **existing covenants**
- 6 **Failure of governance leading to a breach of regulation**
- **Failure to deliver the development programme including shared**
- 7 **ownership sales**
- 8 **Failure to collect income leading to increased rent arrears** 9 **Failure of data security**
mhs homes limited
Page 12
**STRATEGIC REVIEW: RISK MANAGEMENT**
## **Key Controls**
- **Risk**
## **Mitigation**
- **1 Failure to maintain a talented, diverse, engaged workforce:**
Salaries are benchmarked regularly but it is recognised that staff retention is more than the salary, there is therefore a strong emphasis on colleague development and wellbeing, with ‘We Invest in Wellbeing’ Silver accreditation being gained in the year.
2 **Failure to ensure** Compliance reports are **tenants are safe at** presented to all Boards, **home and colleagues** with a strong assurance **are safe at work** process on the data accuracy, which is regularly checked by internal audit. We have worked in partnership with Kent Fire and Rescue Service on our high risk buildings.
We are also one of first housing associations to be assessed under the Building A Safer Future Charter.
## **Summary**
In common with many organisations staff turnover has increased over the year, but vacancies have been successfully filled and a recent survey of staff demonstrated that 94% of colleagues were proud to work for us.
Building safety remains a challenge across the sector, and we continue to work through our stock ensuring issues identified are remedied or suitable mitigations out in.
The strong performance on landlord compliance continues with our legal obligations continuing to being met.
Further assurance is supplied through the recent British Safety Council review of our Health and Safety system.
3 **Failure to invest** Our long term asset spend **sufficiently in current** is reviewed on a quarterly **properties to ensure our** basis by senior **homes are high quality,** management Our stock **safe and energy** condition data is validated **efficient** externally so we can have confidence our data is correct with extra resources allocated to ensure the data is of the highest quality.
99% of our properties are compliant with the Decent Homes Standard (DHS). Costs have been included in our long term financial projections to both increase decent homes standard to 100%, meet the EPC C target of 2030 along with estimates to reach net zero by 2050.
mhs homes limited
Page 13
## **STRATEGIC REVIEW: RISK MANAGEMENT**
**Risk**
## **Mitigation Summary**
- 4 **Failure to maintain an** Our Customer Team is **operational performance** organised, and supported by technology, to make sure that the appropriate colleague, with the right skills is in place to support our customers. Our Strategic Plan lays out how we will put the voice of the customer at the heart of all we do.
The last two years has been a challenge for many, including ourselves with customer satisfaction lower than we would wish. However, the last few months have shown encouraging improvements.
- 5 **Failure to maintain long-** Regular economic updates **term financial viability** from our Treasury advisors **and failure to meet** are reported through to the **existing covenants** Board along with our financial results and projections. Regular stress testing of our financial projections highlights areas of risk along with a prudent approach to treasury management.
With inflation increasing rapidly the risk is rising however mhs homes is well placed with a number of major contracts let earlier in the year and much of our major repair spend on call off contracts allowing flexibility of planning.
- 6 **Failure of governance** A robust governance and **leading to a breach of** risk management **regulation** framework is in place including checklists against NHF Code of Governance. RSH (Regulator of Social Housing) Regulatory Standards and Charity Commission requirements.
## An independent
governance review during the year was a further assurance on our framework. The Board receive an annual report on governance arrangements.
The demand and value for shared ownership properties remains strong with no completed properties unsold at the year end.
- 7 **Failure to deliver the** The risks, including The demand and value for **development** contractor performance shared ownership **programme including** and viability, is reported to properties remains strong **shared ownership sales** Board along with the with no completed position on sales. Our properties unsold at the Treasury Policy takes year end. account of the impact of reduced sales where Finding sufficient calculating the liquidity development schemes to required. meet our aspirations in quality and quality is remains a challenge.
mhs homes limited
Page 14
## **STRATEGIC REVIEW: RISK MANAGEMENT**
||**Risk**|**Mitigation**|**Summary**|
|---|---|---|---|
|8|**Failure to collect income**|A robust Treasury Policy|This risk has stayed|
||**leading to increased**|means that liquid funds are|constant through the year|
||**rent arrears**|available for unexpected|as increased numbers of|
|||falls in receipts. Use of|customers moving onto|
|||predictive analytics has|universal credit is offset by|
|||targeted tenancy|use of new systems that|
|||interventions in a more|target our rent collection in|
|||efficient and timely|a more efficient and|
|||fashion. An active tenancy|effective manner.|
|||sustainment programme||
|||with advice and support is||
|||in place.||
|9|**Failure of data security**|Prevention is our key|Though cyber risks|
|||control with regular|continue to increase our|
|||training for staff, along|system remains robust and|
|||with penetration tests on|secure.|
|||our overall cyber security||
|||system being an effective|Our disaster recovery plans|
|||reduction of risk as|were regularly tested|
|||evidenced by our|successfully and assured|
|||accreditation with Cyber|by internal audit.|
|||Essential Plus.||
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 21 July 2022.
Richard Cooper Chair
mhs homes limited
Page 15
## **VALUE FOR MONEY STATEMENT**
Housing associations must demonstrate a robust approach to Value for Money. The section below outlines our approach and demonstrates how: -
- The Board sets targets, monitors and drives value for money and performance.
- Our performance, cost and customer satisfaction is benchmarked to other similar organisations.
- We ensure satisfactory return on assets.
## **Approach to Value for Money**
The success of the approach taken by **the Group** in embedding Value for Money can be seen in our results with a robust framework at the heart of all decision-making. The Board ensure that our strategic plans include challenging targets for efficiency, cost control and customer service. The primary financial control in the 2021 – 2024 Strategic Plan was a minimum ratio of surplus to turnover. Without this level of performance, we would be unable to sustain the development programme in place. The Board carefully monitors progress. Budgets are set within this framework and any decisions made are considered through this prism. Other arrangements for ensuring that Value for Money is being obtained include: -
- An annual programme of investment in the housing stock which is based on a 30 year stock investment plan for replacing building components, such as windows, roofs, kitchens and bathrooms, which maintains our stock at 100% Decent Homes Standard.
- A comprehensive Procurement Strategy that sets a discipline to seek value for money in the evaluation and award of new contracts. Where possible supply chains are consolidated to provide greater scope for efficiency and reducing costs.
- The Customer Scrutiny Panel commissions service reviews, including Value for Money considerations, and based on these reports’ recommendations are made to the Board.
- Intrinsically linked to the Asset Management Strategy is our approach to active asset management, in which every property has been reviewed for maintenance costs (both past and future), income, demand and management considerations. Properties that require excessive investment to bring them to the standard required are identified for disposal and the proceeds are reinvested into new or existing homes.
- The business transformation programme continues to optimise digital channels and provide improved customer service by reallocating colleagues resources into areas that add greatest value to the customer.
Salaries are reviewed against external benchmarking every three years and are set against the market median salary. The annual salary increase is recommended to the Board by the Remuneration Committee where independent evidence on pay rises is presented.
mhs homes limited
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**VALUE FOR MONEY STATEMENT**
## **Our performance compared to comparable organisations**
We have compared **the Group’s** results with the sector using the Regulator of Social Housing Summary of Global Accounts for 2021 for Registered Providers in the Southeast of England. The results highlight the financial strength of the organisation with virtually all results being above median or top quartile.
|median or top quartile.|||||
|---|---|---|---|---|
|||**The Group**|||
||Budget|Actual|||
|**Metric**|**2023**|**2022**|**2021**|**Average1 **|
|Investment in - new and existing properties|7.6%|5.7%|7.3%|5.4%|
|New supply delivered – social housing|0.8%|2.1%|1.8%|1.8%|
|New supply delivered – non-social housing|0.1%|0.0%|0.0%|0.1%|
|Gearing|44%|47%|48%|54%|
|EBITDA: interest rate cover|207%|242%|246%|188%|
|Social housing cost per unit £|3,951|3,310|3,044|3,989|
|Operating margin – (social housing only)|41%|43%|47%|34%|
|Operating margin (overall)|40%|41%|46%|31%|
|Return on capital employed|3.9%|4.2%|4.5%|3.5%|
_1 Sourced from 2021 for associations in the southeast_
**Scores above average are shown in green**
## **Our performance against our targets**
|||**The group**|
|---|---|---|
|||**2022**|
|**Metric**|**Actual**|
**Budget**|
|Investment in properties - new and existing|5.7%|8.7%|
|New supply delivered – social housing|2.1%|2.1%|
|New supply delivered – non-social housing|0.0%|0.0%|
|Gearing|47%|52%|
|EBITDA: interest rate cover|242%|
205%|
|Operating margin (overall)|41%|41%|
|Return on capital employed|4.2%|3.7%|
The overall development programme was slightly smaller than anticipated leading to less borrowing, resulting in an improved interest cover and gearing.
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## **VALUE FOR MONEY STATEMENT**
## **Our performance against our targets and other key indicators**
**13 week average of gross rent arrears**
Target for 31 Actual as at 31 Actual as at 31 March 2022 March 2022 March 2021 **3.5% 3.9% 4.1%**
Rent arrears continue to fall despite the increasing number of customers on universal credit. We have every confidence of reaching our target this year.
**Average turnaround days for voids 20 35.9 41.5**
Whilst void turnaround time continues to improve it is still substantially above target. In order to meet this target additional resources have been allocated to this area.
**Average days to complete a repair 10 17.7 14.5**
The average days to complete a repair is above target as external market factors impact performance, in terms of a shortage of skilled labour and longer lead in times for materials. An improvement plan is in place to look at how we can improve. The planned investment in our homes over the next two years will also contribute towards reducing the volume of reactive repairs.
## **Repairs completed right first time 90% 88% 88%**
Whilst slightly below target, the performance was maintained and is close to the median in similar housing associations.
## **Customer satisfaction 80% 67% 65%**
This is a disappointing result however progress is being made as the last quarter’s results were close to 80%. Ensuring this improvement continues is at the centre of all our actions and planning for the upcoming year.
Overall, these results are unsatisfactory; however the Board are committed to achieving year on year improvements, with action plans in place to drive progress.
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## **VALUE FOR MONEY STATEMENT**
## **Return on investment by asset type**
|||**2021/22**|**2021/22**||**2020/21**|**2019/20**|
|---|---|---|---|---|---|---|
||**Net Cost**
**of Asset***|
**Income**|**Surplus**|**Return**|**Return**|**Return**|
||**£’m**|**£’m**|**£’m**|**%**|**%**|**%**|
|General
needs|247.6|51.8|21.8|8.8|10.5|8.8|
|Shared
ownership|
50.5|2.7|1.5|2.9|2.6|2.3|
|Market
rented**|42.8|3.3|1.9|4.5|4.1|3.4|
_*Based on historic cost (less the revaluation reserve) net of depreciation_
_** After adjusting for deprecation to ensure comparability with other income streams_
- The return on general need assets was higher in 20/21 because of delays in repair spend due to COVID-19 restrictions.
- **the Group** own 361 market rented properties. These properties are held as an investment to generate a surplus that can be reinvested back into social housing. This process is managed by:
- The Board setting the expected return from any new market rented properties taken into management, with this return reflecting the expected risk.
- The Board agreeing an amount to be invested into market rent on an annual basis that is appropriate considering the charitable status of mhs homes and the size of the overall development programme.
- The return from the market rent portfolio is reviewed on an annual basis by the Board to satisfy them that the return is commensurate to the risk involved.
- A greater return would be obtained on our social housing stock if rents were permitted to increase above Local Housing Allowances rates; however, the Board takes the view that it is essential that rents are kept affordable to those in housing need, with social benefit outweighing return on assets.
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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: GROUP BOARD AND ADMINISTRATIVE DETAILS**
The Board can be comprised of up to nine 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, strategic direction and to be responsible for the proper stewardship of the organisation. The Board holds away days and strategy days to review its own performance and long term strategy.
The Board delegate the day-to-day management within the strategic direction agreed 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.
During the year the Board held eight meetings, inclusive of the Annual General Meeting, at which the average attendance rate was 95% (2021: 95%). Applications for membership are invited by open advert. Applicants are shortlisted and interviewed with appointments made according to required skills, competencies and experience. In the case of tenant Trustees annual elections take place. 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.
|**Trustee**|**Position**|
|---|---|
|R Cooper|Chair|
|N Hopkins|Senior Independent Director|
|A Hook|Chief Executive|
|Lord Roy Kennedy|Non-Executive|
|K Franklin|Non-Executive|
|M Miles Lea|Non-Executive|
|R Christopher|Non-Executive|
|J Seager|Tenant Nominee|
|A Campbell|Tenant Nominee|
|**Auditors**|**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
mhs homes limited
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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: GROUP BOARD 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. Ashley is also a Chartered Director and sits on a number of boards including the BRE Trust.
## **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. Kate is Chief Executive at Gateway Housing Association and 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, high-tech 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 Opposition Chief Whip in the House of 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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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: COMMITTEES AND EXECUTIVE TEAM**
## **Trustee Position Changes in year**
## **Group Finance Risk and Audit Committee**
N Hopkins Chair R Oirschot Member S Bate Member Resigned 28 January 2022 I Alfon Member Appointed 9 February 2022
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. The committee recommends 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
## **Remuneration Committee**
K Franklin Chair R Christopher Member R Cooper Member Sally Ironmonger Observer from Heart of Medway
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**
R Christopher Chair S Bate Member Resigned 28 January 2022 L Barton Member R Cooper Member
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.
## **Executive Team**
A Hook Chief Executive B Shelmerdine Finance Director S Goad Operations Director Resigned 27 February 2022 E Keough Interim Operations Director Appointed 17 January 2022
The Leadership Team during the year consisted of the Chief Executive, Executive Directors, Company Secretary 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.
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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: OBJECTIVES, ACTIVITIES & 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 at or below 80% of market rent.
- By investing our surpluses in developing new affordable housing, both rented and shared ownership.
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. Specific examples of practical differences made to our community include: -
- 181 new properties brought into management
- 94 new starts on sites to provide new homes in future years
- 687 new tenancies started in the year
- 30% of new lettings were made to people who were previously homeless
- Over 500 properties upgraded to having an EPC rating of C leading to a reduced carbon footprint and lower bills for our customer
- By becoming an accredited living wage employer ensuring all suppliers we deal with pay a fair wage.
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 16 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.
mhs homes limited
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**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: -
- Heart of Medway Limited is registered as a community benefit society under the Co-operative and Community Benefit Societies Act 2014 and is registered with the RSH.
- Chatham Maritime K1 Construction Limited is responsible for delivering elements of the Group development programme.
- Chatham Maritime K1 Developments Limited is a commercial subsidiary whose sole activity is the ownership of the head office for the Group.
- mhs commercial services limited and mhs community charity limited are dormant companies.
**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 (2020 edition). 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.
## **Induction and training opportunities for Trustees**
All new trustees receive a structured induction programme which includes visits to projects, a briefing session on governing documents, meetings with colleagues and one-to-one sessions with the executives. 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. 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 NonExecutive Directors be reviewed annually using external benchmarking advice. The fees were last benchmarked in 2021 and are programmed to be reviewed in 2023.
## **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.
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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: OUR STRUCTURE, GOVERNANCE AND MANAGEMENT**
## **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. In the last year, the Panel carried out reviews of the following four services:
- Living and working through Covid
- My Account
- Estate Services
- Tenancy Support
A range of recommendations were made to help improve and shape future service delivery. This process is supported by external consultants so the Panel can call upon independent expertise as required.
## **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.
## **Funds held as custodian on behalf of others**
No funds are held as custodians on behalf of others.
## **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. and in the last year also achieved ‘We Invest in Wellbeing’ Silver accreditation.
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** is committed to having an inclusive and diverse workforce.
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.
## **Exemptions from disclosures**
No exemptions from disclosures have been taken in this report.
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**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 delivered in accordance with the agreed specification.
## **Impact on the environment**
**The Group** recognises that it spends substantial amounts on new build projects and maintenance, and there is therefore a strong commitment 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 and reducing waste. 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 10.
## **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 last assessment on health and safety in January 2022 resulted in us achieving British Safety Council level 3 award (‘good’). This is an important external validation of our robust approach to health and safety management.
## **Going concern**
After reviewing the budget of mhs homes for 2022/23 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. The Group has available £70 million of funding across two revolving credit facilities, both fully charged and available to draw. We also start the year with substantial cash reserves of £37 million in line with our prudent approach to treasury management.
## **Compliance with Governance and Financial Viability Standard**
The Board of **mhs homes** determines and monitors the strategic direction of **the Group** and has adopted the National Housing Federation’s Code of Governance: promoting board excellence for housing associations (2020 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.
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**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**
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: -
- A surplus that exceeds the covenants set by its funders after allowing for management and maintenance costs that ensure our properties are kept at a high standard.
- This surplus being reinvested into new homes that meet the objectives of the charity.
For the purpose of 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: -
- Sufficient cash is available to fund three months of cashflow.
-
- Sufficient charged loans are available to cover twenty four months of cashflow.
- Sufficient loans are in place to cover three years of cashflow.
**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 to act as our auditors. A resolution for the re- appointment of BDO LLP as auditors of the Association is to be proposed at the forthcoming Annual General Meeting.
## **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.
mhs homes limited
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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: OUR STRUCTURE, GOVERNANCE AND MANAGEMENT**
## **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.
## **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:
- Select suitable accounting policies and then apply them consistently.
- Observe the methods and principles in the Charities SORP (FRS 102).
- Make judgements and accounting estimates that are reasonable and prudent.
- State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.
- Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Trustees are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the 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 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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**TRUSTEES’ ANNUAL REPORT INCORPORATING DIRECTORS REPORT: S172 STATEMENT**
## **How the Board complied with its Section 172 duty**
The Companies Act 2006 (CA2006) sets out a number of 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 also should have regard to (amongst other matters) six specified areas below that relate to wider stakeholder interests.
## **1. Likely consequence of any decision in the long term**
mhs is a long term business that provides homes and security for our customers whilst generating surpluses that allow us to invest, in new social housing. As this is a loss-making activity, we monitor closely the impact of our developments on the long-term financial plan. This is considered by the Board on an annual basis, or more often if the situation demands, and is considered in detail in the section “Future Planning” on page 9.
## **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 25.
- We measure how our customers feel about their day-to day interactions with **the Group** by use of the STAR (Survey of Tenants and Residents) surveys.
- We aim to deal with complaints promptly so we can learn as a business and resolve the issue for the customer. During the year, 616 complaints were received with 330 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, whistleblowing and anti-bribery in place which are described in more detail on page 31.
## **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, 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 25
## **6. Impact of operations on the community and the environment**
See pages 10 and 11 for our impact on the environment and community
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**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 support and assist Heart of Medway to comply 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 have found that the Heart of Medway is compliant. In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls. This approach includes the regular evaluation of the nature and extent of risks to which **the Group** is exposed.
**The Group** has adopted the National Housing Federations Code of Governance (2020) and is compliant. 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 on-going 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 Group 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 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.
## **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
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**ASSESSMENT OF THE EFFECTIVENESS OF INTERNAL CONTROLS**
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. An audit plan was agreed by the Committee for 2021/22. All recommendations are followed up by Internal Audit to ensure complete implementation. The internal audit service is co-sourced with the audit contractor, RSM-UK.
The Committee met five 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 financial control weaknesses that may have come to their attention in the course of their duties. This letter is considered by the Group 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 staff 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.
## **Financial Controls**
On behalf of the Board, the Group 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 2022. 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:
- The operation of formal policies and procedures, including the documentation of key systems and processes recorded in Financial Regulations, Standing Orders and Delegated Arrangements which enables the monitoring of controls and restricts the unauthorised use of assets. Regular reviews take place to ensure that procurement takes place in a manner that complies with Financial Regulations and Delegated Arrangements.
- A proactive approach to fraud based on prevention and detection rather than being reactive to frauds that have taken place. An Anti-Fraud and Corruption Policy is in place, which is reviewed and approved by the Group Board. A fraud risk register is incorporated within the Risk Management Framework and controls are monitored regularly. The organisation has a
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**ASSESSMENT OF THE EFFECTIVENESS OF INTERNAL CONTROLS**
whistleblowing policy encouraging colleagues to raise issues of malpractice or irregularities which are investigated independently under the Public Interest Disclosure Act. The Group Finance Risk and Audit Committee also receive reports if issues are raised.
- Suitably qualified and experienced colleagues take responsibility for important business functions. Each service receives a Performance Review Board appraisal by the Executive Team every six months to review risk, performance and service delivery. Budgets and forecasts are prepared and reviewed on a systematic basis, which enables the Board and management to monitor the key business risks, financial performance and track progress against targets. All major new initiatives, commitments and investment projects are subject to formal authorisation procedures, through relevant committees comprising Board members and other suitably experienced and qualified executives.
## **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 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 and Centrus Financial Advisors Limited act as advisors on treasury management.
## **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 2021/22 year and up until the adoption of these accounts.
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**INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF mhs homes limited**
## **INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MHS HOMES LIMITED**
## **Opinion on the financial statements**
In our opinion, the financial statements:
- give a true and fair view of the state of the Group’s and of the Parent Charitable Company’s affairs as at 31 March 2022 and of the Group’s incoming resources and application of resources and the Parent Charitable Company’s incoming resources and application of resources for the year then ended;
- have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
- have been properly prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of mhs homes Limited (“the Parent Charitable Company”) and its subsidiaries (“the Group”) for the year ended 31 March 2022 which comprise the consolidated statement of financial activity, the consolidated and Parent Charitable Company statement of comprehensive income, the consolidated and Parent Charitable Company statement of financial position, the consolidated statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including 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 relating to going concern**
In auditing the financial statements, we have concluded that the Trustee’ 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.
## **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. Our opinion on the financial statements does not cover the other information we do not express any form of assurance conclusion thereon. Our responsibility is to read the other
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**INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF mhs homes limited**
information including, the Strategic Report, Value for Money and Assessment of the Effectiveness of Internal Controls and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work 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:
- the information given in the Trustees’ Report, which includes the Directors’ Report and the Strategic report prepared for the purposes of Company Law, for the financial year for which the financial statements are prepared is consistent with the financial statements; and
- the Strategic report and the Directors’ Report, which are included in the Trustees’ report, have been prepared in accordance with applicable legal requirements.
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 misstatements 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;
- adequate accounting records have not been kept by the Parent Charitable Company, or returns adequate for our audit have not been received from branches not visited by us; or
- the Parent Charitable Company financial statements are not in agreement with the accounting records and returns; or
- certain disclosures of Directors’ remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
## **Responsibilities of the 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 determine 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
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**INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF mhs homes limited**
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.
Audit procedures capable of detecting irregularities including fraud performed by the engagement team included:
• Performing analytical procedures to identify unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
• Discussions with management, including consideration of known or suspected instances of noncompliance with laws and regulations and fraud;
• Reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC and relevant regulators to identify any actual or potential frauds or any potential weaknesses in internal control which could result in fraud susceptibility;
• Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;
- Reviewing items included in the fraud register;
• Challenging assumptions made by management in their significant accounting estimates, in particular in relation to the recoverable amount of assets and the assumptions used in determining the defined benefit obligation; and
• In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments.
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.
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**INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF mhs homes limited**
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: 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.
Paula Willock (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor Gatwick
Date: `01 August 2022`
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Consolidated Statement of Financial Activity**
|**mhs homes group**
**Note**
**Revaluation**
**reserve**
**2022**
**£’000**
**Income from charitable activities**
Social housing lettings
4
-
Supporting People
4
-
Other income
4
-
Sale of fixed assets
12
-
First tranche shared
ownership sales
4
-
**Income from non-social housing activities**
Other
4
-
**Income from investment activities**
Market rented
Properties
4
-
Investment income
13
-|**Unrestricted**
**funds**
**2022**
**£’000**
54,446
-
363
1,158
5,142
956
3,383
15|**Restricted**
**funds**
**2022**
**£’000**
-
388
-
-
-
-
-
-|**Total**
**funds**
**2022**
**Total**
**funds**
**2021**
**£’000**
**£’000**
54,446
52,204
388
388
363
439
1,158
311
5,142
2,764
956
976
3,383
3,352
15
31|
|---|---|---|---|
|**Total income**
**-**
**Expenditure on charitable activities**
Social housing lettings
4
-
Supporting people
4
-
Other expenditure
4
-
First tranche shared
ownership sales
4
-
**Expenditure on non-social housing activities**
Other
4
-
Market rented
properties
4
-
**Interest and**
**financing costs**
14
-|**65,463**
31,165
259
504
3,914
524
1,244
11,297|**388**
-
388
-
-
-
-
-|**65,851**
**60,465**
31,165
27,745
647
744
504
502
3,914
2,137
524
484
1,244
1,018
11,297
11,412|
|**Total expenditure**
**-**|**48,907**|**388**|**49,295**
**44,042**|
|||||
|**Net income**
**-**|**16,556**|**-**|**16,556**
**16,423**|
|**Gain in fair value of:**-
Investments
19
6
Investment properties
18
-
**Actuarial gain**
Defined benefit pension
scheme
26
-|-
6,169
1,756|-
-
-|6
13
6,169
4,085
-
1,756
1,101|
|**Net movement in funds**
**6**|**24,481**|**-**|**24,487**
**21,622**|
|Total funds brought forward
212,528|128,147|-|340,675
319,053|
|Transfer to unrestricted funds on
disposalof revalued properties
(1,902)|1,902|-|-
-|
|**Total funds carried forward**
**210,632**|**154,530**|**-**|**365,162**
**340,675**|
All activities relate to continuing operations
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**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Statements of Comprehensive Income**
|**mhs homes group**||**Total**|**Total**|
|---|---|---|---|
||**Note**|**2022**|**2021**|
|||**£'000**|**£'000**|
|Turnover|4|**64,678**|60,123|
|Cost of sales|4|**(3,914)**|(2,137)|
|Operating costs|4|**(34,084)**|(30,493)|
|Surplus on disposal of fixed assets|12|**1,158**|311|
|**Operating surplus**||**27,838**|27,804|
|Other interest receivable and similar income|13|**15**|31|
|Interest payable and financing costs|14|**(11,297)**|(11,412)|
|Movement in fair value of investments|19|**6**|13|
|Movement in fair value of investmentproperties|18|**6,169**|4,085|
|**Surplus before taxation**||**22,731**|20,521|
|Taxation on surplus|15|**-**|-|
|**Surplus for the year**||**22,731**|20,521|
|**Actuarial gain on defined benefits pension scheme**|
26|**1,756**|1,101|
|**Total comprehensive income for the financial year**||**24,487**|21,622|
|**mhs homes limited**||**Total**|**Total**|
||**Note**|**2022**|**2021**|
|||**£'000**|**£'000**|
|Turnover|4|**57,764**|52,777|
|Cost of sales|4|**(3,914)**|(2,137)|
|Operating costs|4|**(30,582)**|(27,677)|
|Surplus on disposal of fixed assets|12|**757**|4|
|**Operating surplus**||**24,025**|22,967|
|Other interest receivable and similar income|13|**522**|555|
|Interest payable and financing costs|14|**(11,140)**|(11,208)|
|Movement in fair value of investmentproperties|18|**5,973**|3,961|
|**Surplus before taxation**||**19,380**|16,275|
|Taxation on surplus|15|**-**|-|
|**Surplus for the year**||**19,380**|16,275|
|**Actuarial gain on defined benefits pension scheme**|
26|**1,756**|1,101|
|**Total comprehensive income for the financial year**||**21,136**|17,376|
|All activities relate to continuing operations.||||
|The notes on pages 41 to 71 form part of these financial|statements.|||
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**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Statements of Financial Position**
|||**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|---|
|||||**homes**|**homes**|
||**Note**|**2022**|**2021**|**2022**|**2021**|
|||**£'000**|**£'000**|**£'000**|**£'000**|
|**Fixed assets**||||||
|Tangible fixed asset - housing|16|**538,425**|519,868|**418,830**|417,879|
|Tangible fixed assets - other|17|**7,435**|7,715|**1,782**|1,915|
|Investment properties|18|**87,458**|78,904|**81,438**|73,080|
|Investments|19|**276**|270|**-**|-|
|||**633,594**|606,757|**502,050**|492,874|
|**Current assets**||||||
|Stock and work in progress|20|**1,750**|3,168|**1,750**|3,168|
|Debtors – receivable within one|21|**3,865**|2,875|**2,886**|2,559|
|Debtors – receivable after one year|21|**-**|-|**16,201**|13,767|
|Short term deposits||**1,864**|1,845|**1,519**|1,583|
|Cash and cash equivalents||**34,331**|36,401|**34,307**|32,320|
|||**41,810**|44,289|**56,663**|53,397|
|**Creditors: amounts falling due**
**within oneyear**|22|**(16,690)**|(20,622)|**(15,454)**|(18,205)|
|**Net current assets**||**25,120**|23,667|**41,209**|35,192|
|**Total assets less current**||**658,714**|630,424|**543,259**|528,066|
|**Creditors: Amounts falling due**||||||
|**after more than one year:**||||||
|Loans|23|**(284,561)**|(279,412)|**(265,070)**|(269,667)|
|**Net assets excluding pension**||**374,153**|351,012|**278,189**|258,399|
|Pension liability|26|**(8,991)**|(10,337)|**(8,991)**|(10,337)|
|**Net assets**||**365,162**|340,675|**269,198**|248,062|
|**Capital and reserves**||||||
|Income and expenditure reserve||**154,530**|128,147|**58,599**|35,562|
|Revaluation reserve||**210,632**|212,528|**210,599**|212,500|
|||**365,162**|340,675|**269,198**|248,062|
These financial statements were approved and authorised for issue by the Board on 21 July 2022 and were signed on its behalf by:
A Hook L Humphrey R Cooper Chief Executive Company Secretary Chair
The notes on pages 41 to 71 form part of these financial statements.
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**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Consolidated Statement of Cashflows**
## **mhs homes group**
||**Note**|**2022**|**2021**|
|---|---|---|---|
|**Cash flows from operating activities**||**£'000**|**£'000**|
|**Surplus for the financial year**||**22,731**|20,521|
|Adjustments for:||||
|Depreciation of fixed assets - housing properties|16|**5,613**|5,314|
|Loss on disposal of replaced components||**90**|168|
|Depreciation of fixed assets – other|17|**408**|426|
|Grant received in year||**(1,491)**|(1,915)|
|Impairment of assets|16|**115**|208|
|Interest payable and finance costs||**11,297**|11,412|
|Cost element of housing property sales in operating|12|**5,888**|724|
|Increase in fair value of investment properties|18|**(6,169)**|(4,085)|
|Increase in fair value of investments|19|**(6)**|(13)|
|Increase in trade and other debtors||**(296)**|(144)|
|Difference between net pension expense and cash||**410**|338|
|Decrease in stocks||**3,774**|1,826|
|Decrease \(increase) in trade and other creditors||**(4,113)**|1,880|
|Interest received||**(15)**|(31)|
|**Cash from operations**||**38,236**|36,629|
|**_Net cash generated from operating activities_**||**38,236**|36,629|
|**Cash flows from investing activities**||||
|Purchase of fixed assets – housing properties|16|**(28,459)**|(36,660)|
|Purchase of fixed assets – investment properties|18|**(2,824)**|(4,605)|
|Purchases of fixed assets – other|17|**(128)**|(118)|
|Major repairs capitalised as components|16|**(3,188)**|(2,785)|
|Receipt of grant||**797**|1,915|
|Interest received|13|**15**|31|
|**_Net cash from investing activities_**||**(33,787)**|(42,222)|
|**Cash flows from financing activities**||||
|Interest paid||**(11,800)**|(12,248)|
|New loans|23|**10,000**|10,000|
|Repayment of loans|23|**(4,700)**|(9,000)|
|**_Net cash used in financing activities_**||**(6,500)**|(11,248)|
|||||
|**Net increase in cash and cash equivalents**||**(2,051)**|(16,841)|
|Cash and cash equivalents at beginning of year||**38,246**|55,087|
|**Cash and cash equivalents at end of year**||**36,195**|38,246|
The notes on page 41 to 71 form part of these financial statements
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**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements**
## **1. Legal status**
mhs homes is a 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 2022.
## **2. Accounting policies**
The financial statements have been in prepared in accordance with UK accounting standards, including Financial Reporting Standard 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS102)and the Charities: Statement of recommended practice (FRS102).
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:
- Only one reconciliation of the number of shares outstanding at the beginning and end of the period has been presented as the reconciliations for the group and the Parent Charitable Company would be identical.
- No cash flow statement has been presented for the Parent Charitable Company.
- No disclosure has been given for the aggregate remuneration of the key management personnel of the parent association as their remuneration is included in the totals for the Group as a whole.
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.
mhs homes limited
Page 41
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## _**Going Concern**_
After reviewing the budget of mhs homes for 2022/23 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. The Group has available £70 million of funding across two revolving credit facilities, both fully charged and available to draw. We also start the year with substantial cash reserves of £37 million in line with our prudent 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.
- Rental and service charges receivable (after deducting lost rent from void properties);
- First and subsequent tranche sales of shared ownership housing properties developed for sale;
- Capital grants;
- Revenue grants;
- Proceeds from the sale of land and property.
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.
mhs homes limited
Page 42
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
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:
- The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;
- Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
- Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.
## _**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.
mhs homes limited
Page 43
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## _**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.
## _**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.
## _**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 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.
mhs homes limited
Page 44
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
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|
## _**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.
## _**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".
mhs homes limited
Page 45
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## _**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.
## _**Stock**_
Stock represents work in progress and completed 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.
## _**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.
## _**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.
mhs homes limited
Page 46
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
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.
- Whether leases entered into by the Group either as a lessor or a lessee are operating or lease or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis.
- The categorisation of housing properties as investment properties or property, plant and equipment based on the use of the asset.
- What constitutes a cash generating unit when indicators of impairment require there to be an impairment review.
## _**Other key sources of estimation uncertainty.**_
## _**Tangible fixed assets (see note 16 and 17)**_
Tangible fixed assets, other than investment properties, are depreciated over their useful lives taking into account residual values. These are assessed annually and 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.
## _**Investment Properties (see note 18)**_
**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 house price index based on location and type of property.
## _**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.
mhs homes limited
Page 47
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**4**
**Particulars of turnover, cost of sales, operating costs and operating surplus**
**mhs homes group**
**Turnover**
**Cost of**
**sales**
**Operating**
**costs**
**Sale of**
**fixed**
**assets**
**Operating**
**surplus/**
**(deficit)**
**2022**
**2022**
**2022**
**2022**
**2022**
**£'000**
**£'000**
**£'000**
**£'000**
**£'000**|**4**
**Particulars of turnover, cost of sales, operating costs and operating surplus**
**mhs homes group**
**Turnover**
**Cost of**
**sales**
**Operating**
**costs**
**Sale of**
**fixed**
**assets**
**Operating**
**surplus/**
**(deficit)**
**2022**
**2022**
**2022**
**2022**
**2022**
**£'000**
**£'000**
**£'000**
**£'000**
**£'000**|
|---|---|
|**Social housing lettings (Note 5)**
**54,446**
**-**
**(31,165)**
**-**
**23,281**
**Other social housing activities**
First tranche shared ownership sales
**5,142 (3,914)**
**-**
**-**
**1,228**
Development
**-**
**-**
**(211)**
**-**
**(211)**
Supporting people
**388**
**-**
**(647)**
**-**
**(259)**
Foyers
**291**
**-**
**(213)**
**-**
**78**
Managed properties
**63**
**-**
**(81)**
**-**
**(18)**||
|
**Charitable activities**
**60,330(3,914)**
**(32,317)**
**-**
**24,099**||
|**Non-social housing activities**
Market rented properties
**3,383**
**-**
**(1,243)**
**-**
**2,140**
Other income
**9**
**-**
**-**
**-**
**9**
Other properties & commercial
**956**
**-**
**(524)**
**-**
**432**||
|
**Non charitable activities**
**4,348**
**-**
**(1,767)**
**-**
**2,581**||
|**Surplus on disposal of fixed assets**
**-**
**-**
**-**
**1,158**
**1,158**||
||**64,678 (3,914)**
**(34,084)**
**1,158**
**27,838**|
||**mhs homes group**
**Turnover**
**Cost of**
**sales**
**Operating**
**costs**
**Sale of**
**fixed**
**assets**
**Operating**
**surplus/**
**(deficit)**
**2021**
**2021**
**2021**
**2021**
**2021**
**£'000**
**£'000**
**£'000**
**£'000**
**£'000**
**Social housing lettings (Note 5)**
52,204
-
(27,745)
-
24,459
**Other social housing activities**
First tranche shared ownership sales
2,764
(2,137)
-
-
627
Development
-
-
(220)
-
(220)
Supporting people
388
-
(744)
-
(356)
Foyers
287
-
(203)
-
84
Managed properties
59
-
(79)
-
(20)
**Charitable activities**
**55,702**
**(2,137)**
**(28,991)**
**-**
**24,574**
**Non-social housing activities**
Market rented properties
3,352
-
(1,018)
-
2,334
Other income
93
-
-
-
93
Other properties & commercial
976
-
(484)
-
492
**Non charitable activities**
**4,421**
**-**
**(1,502)**
**-**
**2,919**
**Surplus on disposal of fixed assets**
-
-
-
311
311
**60,123**
**(2,137)**
**(30,493)**
**311**
**27,804**|
mhs homes limited
Page 48
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**4**
**Particulars of turnover,**|**cost of sales, operating costs and operating surplus**|**cost of sales, operating costs and operating surplus**|**cost of sales, operating costs and operating surplus**|**cost of sales, operating costs and operating surplus**|**cost of sales, operating costs and operating surplus**|
|---|---|---|---|---|---|
|**(continued)**||||||
|**mhs homes limited**|**Turnover**|**Cost of**|**Operating**|**Sale of**|**Operating**|
|||**Sales**|**costs**|**fixed**|**surplus/**|
|||||**assets**|**(deficit)**|
||**2022**|**2022**|**2022**|**2022**|**2022**|
||**£'000**|**£'000**|**£'000**|**£'000**|**£'000**|
|**Social housing lettings (Note 5)**|**48,367**|**-**|**(28,249)**|-|**20,118**|
|**Other social housing activities**||||||
|First tranche shared ownership sales|**5,142**|**(3,914)**|**-**|-|**1,228**|
|Development|**-**|**-**|**(211)**|-|**(211)**|
|Supporting people|**188**|**-**|**(337)**|-|**(149)**|
|Managed properties|**63**|**-**|**(81)**|-|**(18)**|
|**Charitable activities**|**53,760**|**(3,914)**|**(28,878)**|-|**20,968**|
|**Non-social housing activities**||||||
|Market rented properties|**3,263**|**-**|**(1,180)**|-|**2,083**|
|Other income|**8**|**-**|**-**|-|**8**|
|Other properties and commercial|**733**|**-**|**(524)**|-|**209**|
|**Non charitable activities**|**4,004**|**-**|**(1,704)**|-|**2,300**|
|**Surplus on disposal of fixed assets**|**-**|**-**|**-**|**757**|**757**|
||**57,764**|**(3,914)**|**(30,582)**|**757**|**24,025**|
|**mhs homes limited**|**Turnover**|**Cost of**|**Operating**|**Sale of**|**Operating**|
|||**Sales**|**costs**|**fixed**|**surplus/**|
|||||**assets**|**(deficit)**|
||**2021**|**2021**|**2021**|**2021**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|**£'000**|
|**Social housing lettings (Note 5)**|45,749|-|(25,569)|-|20,180|
|**Other social housing activities**||||||
|First tranche shared ownership sales|2,764|(2,137)|-|-|627|
|Development|-|-|(220)|-|(220)|
|Supporting people|188|-|(420)|-|(232)|
|Managed properties|59|-|(79)|-|(20)|
|**Charitable activities**|**48,760**|**(2,137)**|**(26,288)**|-|**20,335**|
|**Non-social housing activities**||||||
|Market rented properties|3,184|-|(905)|-|2,279|
|Other income|83|-|-|-|83|
|Other properties and commercial|750|-|(484)|-|266|
|**Non charitable activities**|**4,017**|**-**|**(1,389)**|-|**2,628**|
|**Surplus on disposal of fixed assets**|-|-|-|4|4|
||**52,777**|**(2,137)**|**(27,677)**|**4**|**22,967**|
mhs homes limited
Page 49
## **FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **5 Income and expenditure from social housing lettings**
|**mhs homes group**|**Affordable**|**General**|
**Supported**|**Shared**|**Total**|**Total**|
|---|---|---|---|---|---|---|
||**rent**|**needs**|**housing**|**ownership**|**2022**|**2021**|
||**£’000**|**£'000**|**£'000**|**£'000**|**£’000**|**£’000**|
|**Income**|||||||
|Rents net of identifiable service charges*|**5,122**|**41,496**|**2,621**|**2,003**|**51,242**|49,757|
|Service charge income|**315**|**528**|**296**|**414**|**1,553**|447|
|Amortised government grant|**69**|**1,187**|**24**|**211**|**1,491**|1,916|
|Other income|**(1)**|**118**|**4**|**39**|**160**|84|
|**Turnover from social housing lettings**|**5,505**|**43,329**|**2,945**|**2,667**|**54,446**|52,204|
|**Expenditure**|||||||
|Management|**(542)**|**(4,597)**|**(648)**|**(178)**|**(5,965)**|(5,644)|
|Service charge costs|**(324)**|**(1,516)**|**(508)**|**(414)**|**(2,762)**|(2,693)|
|Routine maintenance|**(423)**|**(5,534)**|**(284)**|**(8)**|**(6,249)**|(5,522)|
|Planned maintenance|**(364)**|**(5,201)**|**(549)**|**(51)**|**(6,165)**|(5,920)|
|Major repairs|**(756)**|**(2,321)**|**(741)**|**(102)**|**(3,920)**|(1,695)|
|Bad debts|**(24)**|**(225)**|**(29)**|**(8)**|**(286)**|(576)|
|Depreciation of housing properties:|||||||
|- annual charge|**(766)**|**(4,038)**|**(356)**|**(453)**|**(5,613)**|(5,319)|
|- impairment|**-**|**(115)**|**-**|**-**|**(115)**|(208)|
|- accelerated on disposal of components|**(23)**|**(67)**|**-**|**-**|**(90)**|(168)|
|**Operating expenditure on social housing**
**lettings**|**(3,222)**|**(23,614)**|**(3,115)**|**(1,214)**|**(31,165)**|(27,745)|
|**Operating surplus on social housing lettings**|**2,283**|**19,715**|**(170)**|**1,453**|**23,281**|24,459|
||||||||
|Void losses|**(16)**|**(336)**|**(86)**|**(7)**|**(445)**|(484)|
mhs homes limited
Page 50
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**5**
**Income and expenditure from social housing lettings**|**5**
**Income and expenditure from social housing lettings**||||||
|---|---|---|---|---|---|---|
|**mhs homes limited**|**Affordable**|**General**|
**Supported**|**Shared**|**Total**|**Total**|
||**rent**|**needs**|**housing**|**ownership**|**2022**|**2021**|
||**£’000**|**£'000**|**£'000**|**£'000**|**£’000**|**£’000**|
|**Income**|||||||
|Rents net of identifiable service charges*|**2,553**|**40,721**|**2,483**|**1,125**|**46,882**|45,665|
|Service charge Income|**210**|**464**|**277**|**222**|**1,173**|-|
|Amortised government grant|**-**|**-**|**-**|**190**|**190**|-|
|Other income|**-**|**118**|**4**|**-**|**122**|84|
|**Turnover from social housing lettings**|**2,763**|**41,303**|**2,764**|**1,537**|**48,367**|45,749|
|**Expenditure**|||||||
|Management|**(250)**|**(4,930)**|**(637)**|**(167)**|**(5,984)**|(5,567)|
|Service charge costs|**(210)**|**(1,439)**|**(496)**|**(222)**|**(2,367)**|(2,240)|
|Routine maintenance|**(290)**|**(5,492)**|**(278)**|**(5)**|**(6,065)**|(5,402)|
|Planned maintenance|**(269)**|**(5,163)**|**(545)**|**(22)**|**(5,999)**|(5,729)|
|Major repairs|**(116)**|**(2,267)**|**(740)**|**(4)**|**(3,127)**|(1,540)|
|Bad debts|**-**|**(215)**|**(29)**|**(9)**|**(253)**|(516)|
|Depreciation of housing properties:|||||||
|- annual charge|**(10)**|**(3,776)**|**(209)**|**(277)**|**(4,272)**|(4,202)|
|- impairment|**-**|**(115)**|**-**|**-**|**(115)**|(208)|
|- accelerated on disposal of components|**-**|**(67)**|**-**|**-**|**(67)**|(165)|
|**Operating expenditure on social housing**
**lettings**|**(1,145)**|**(23,464)**|**(2,934)**|**(706)**|**(28,249)**|(25,569)|
|**Operating surplus on social housing lettings**|**1,618**|**17,839**|**(170)**|**831**|**20,118**|20,180|
||||||||
|Void losses|**-**|**(331)**|**(86)**|**-**|**(417)**|(432)|
mhs homes limited
Page 51
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **6 Expenditure on charitable activities**
|**mhs homes group**||**Depreciation and**|**Depreciation and**|**Direct activities**|**Direct activities**|**Support and**|**Support and**|**Total**|**Total**|
|---|---|---|---|---|---|---|---|---|---|
|||**amortisation**||||**governance costs**||||
|||**2022**|**2021**|**2022**|**2021**|**2022**|**2021**|**2022**|**2021**|
|||**£'000**|**£'000**|**£'000**|**£'000**|**£'000**|**£'000**|**£’000**|**£’000**|
|General needs||**(5,009)**|(5,281)|**(16,143)**|(13,812)|**(5,684)**|(5,185)|**(26,836)**|(24,278)|
|Supported housing||**(356)**|-|**(2,358)**|(2,068)|**(401)**|(408)|**(3,115)**|(2,476)|
|Shared ownership||**(453)**|(415)|**(521)**|(359)|**(240)**|(217)|**(1,214)**|(991)|
|**Social housing lettings**||**(5,818)**|(5,696)|**(19,022)**|(16,239)|**(6,325)**|(5,810)|**(31,165)**|(27,745)|
|Supporting People||**-**|-|**(647)**|(744)|**-**|-|**(647)**|(744)|
|Other expenditure||**-**|-|**(505)**|(502)|**-**|-|**(505)**|(502)|
|**Total**
**charitable**
**expenditure**
**included in operating costs**||**(5,818)**|(5,696)|**(20,174)**|(17,485)|**(6,325)**|(5,810)|**(32,317)**|(28,991)|
|First Tranche shared ownership sales||**-**|-|**(3,914)**|(2,137)|**-**|-|**(3,914)**|(2,137)|
|**Operating surplus on social**
**housing lettings**||**(5,818)**|(5,696)|**(24,088)**|(19,622)|**(6,325)**|(5,810)|**(36,231)**|(31,128)|
mhs homes limited
Page 52
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **6 Expenditure on charitable activities (continued)**
|**mhs homes limited**|**Depreciation and**|**Depreciation and**|**Direct activities**|**Direct activities**|**Support and**|**Support and**|**Total**|**Total**|
|---|---|---|---|---|---|---|---|---|
||**amortisation**||||**governance costs**||||
||**2022**|**2021**|**2022**|**2021**|**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|**£'000**|**£'000**|**£’000**|**£’000**|
|General needs|**(3,968)**|(4,338)|**(14,917)**|(13,045)|**(5,725)**|(5,205)|**(24,610)**|(22,588)|
|Supported housing|**(209)**|-|**(2,324)**|(2,068)|**(401)**|(408)|**(2,934)**|(2,476)|
|Shared ownership|**(277)**|(236)|**(199)**|(90)|**(229)**|(179)|**(705)**|(505)|
|**Social housing lettings**|**(4,454)**|(4,574)|**(17,440)**|(15,203)|**(6,355)**|(5,792)|**(28,249)**|(25,569)|
|Supporting people|**-**|-|**(337)**|(420)|**-**|-|**(337)**|(420)|
|Other expenditure|**-**|-|**(292)**|(299)|**-**|-|**(292)**|(299)|
|**Total Charitable expenditure**
**included in operating costs**|**(4,454)**|(4,574)|**(18,069)**|(15,922)|**(6,355)**|(5,792)|**(28,878)**|(26,288)|
|First tranche shared ownership sales|**-**|-|**(3,914)**|(2,137)|**-**|-|**(3,914)**|(2,137)|
|**Operating surplus on social**
**housing lettings**|**(4,454)**|(4,574)|**(21,983)**|(18,059)|**(6,355)**|(5,792)|**(32,792)**|(28,425)|
mhs homes limited
Page 53
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **7 Units of housing stock**
||**Social housing**
**As at 1**
**April**
**2021**
**Transfers**
**mhs homes limited**|**New**
**Build**|**Demolished**|**Disposals**
**As at 31**
**March**
**2022**|
|---|---|---|---|---|
||General needs housing
6,660
36
Sheltered schemes
481
(10)
Shared ownership
233
-
Intermediate rent
1
-
Social leaseholders
468
-
Foyers *
36
-
**7,879**
**26**
**Heart of Medway**
General needs housing
522
-
Sheltered schemes
-
-
Shared ownership
243
-
Social leaseholders
18
-
**783**
**-**
**Lord Kitchener**
General needs housing
6
-
**Non– Social housing**
**mhs homes limited**
Managed freeholders
177
-
Market rent
344
(2)
Commercial lettings
46
-
**Heart of Medway**
Market rent
17
-
Managed freeholders
4
-|62
-
41
-
-
-
**103**
21
54
-
-
**75**
-
-
3
-
-
-|(35)
-
-
-
(1)
-
**(36)**
-
-
-
-
**-**
-
-
(1)
-
-
-|(5)
**6,718**
-
**471**
(5)
**269**
-
**1**
6
**473**
-
**36**
**(4)**
**7,968**
-
**543**
-
**54**
(5)
**238**
3
**21**
**(2)**
**856**
-
**6**
-
**177**
-
**344**
-
**46**
-
**17**
2
**6**|
||
**Total owned**
9,256
24|181|(37)|2
**9,420**|
||Accommodation managed
for others
84
-
by other
42
(24)|-
-|-
-|-
**84**
-
**18**|
||**Total owned or**
**managed**
**9,382**
**-**|**181**|**(37)**|**(4)**
**9,522**|
||||||
||**Garages**
1,449
-|-|(45)|-
**1,404 **|
||*** Properties leased to Heart of Medway between 3 and 16 years**
**Group**
Group
**mhs**
**homes**
**mhs**
**homes**
**2022**
2021
**2022**
2021
**Units under construction: commitments contracted**
Houses
**82**
128
**39**
64
Sheltered
**120**
54
**30**
-
Flats
**65**
112
**29**
76
**Units under development: approved but not contracted**
Houses
**36**
56
**10**
30
Sheltered
**-**
119
**-**
119
Flats
**36**
45
**12**
33||||
||||||
||**339**
460
**120**
322||||
mhs homes limited
Page 54
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**8**
**Operating Surplus**|||||
|---|---|---|---|---|
||**Group**|**Group**|**mhs**
**homes**|**mhs**
**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£’000**|**£’000**|**£'000**|
|This is arrived at after charging:|||||
|Depreciation of housing properties:|||||
|-
annual charge|**5,613**|5,319|**4,272**|4,202|
|Depreciation of other fixed assets:|||||
|-
annual charge|**408**|426|**261**|279|
|Accelerated depreciation on replaced components|**367**|329|**325**|326|
|Operating leases|**743**|645|**743**|645|
|Auditors' remuneration (excluding VAT):|||||
|- fees payable to the group's auditor for the audit|**42**|34|**42**|34|
|of the group's annual accounts|||||
|- fees for audit of accounts of subsidiary entities|**33**|14|**-**|-|
|- fees for other audit services|**4**|4|**4**|4|
## **9 Employees**
|**9**
**Employees**|||||
|---|---|---|---|---|
||**Group**|**Group**|**mhs**|**mhs**|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
|**Number of employees**|**266**|275|**266**|275|
||**£’000**|£’000|**£’000**|£’000|
|Wages and salaries|**10,353**|9,653|**10,353**|9,653|
|Social security costs|**959**|918|**959**|918|
|Cost of defined contribution scheme|**379**|368|**379**|368|
|Cost of defined benefit scheme (see note 26)|**256**|261|**256**|261|
||**11,947**|11,216|**11,947**|11,216|
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 266 (2021: 275).
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.
mhs homes limited
Page 55
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 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 20.
|**Trustee**|**Remuneration**
**£’000**|**Remuneration**
**Committee**|**Treasury**
**Committee**|**Group Finance, Risk**
**and Audit Committee**|
|---|---|---|---|---|
|R Cooper|20||||
|N Hopkins|12||||
|R Kennedy|10||||
|K Franklin|9||||
|M Miles Lea|9||||
|R Christopher|11||||
|J Seager|9||||
|A Campbell|9||||
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” : Expenses paid in 2022 were £392 (2021:£713)
## **11 Senior executive remuneration**
||**Group**|**Group**|
|---|---|---|
||**2022**|**2021**|
||**£'000**|**£'000**|
|Key Management personnel emoluments|**522**|551|
|Amounts paid to non-executive|**89**|86|
|Total expenses reimbursed to the directors not chargeable to income|**-**|-|
|tax|||
||**611**|637|
The total amount payable to the Chief Executive, who was also the highest paid director in respect of emoluments, was £183,769 (2021: £187,944). Pension contributions of £44,681 (2021: £45,753) 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 was one director (2021: two) in **the Group's** defined contribution pension scheme. Contributions were paid into the scheme on their behalf £25,209 (2021: £26,862). The remuneration paid to staff (including Leadership Team) earning over £60,000 upwards:
||**Group**|**Group**|
|---|---|---|
||**2022**|**2021**|
||**No.**|**No.**|
|£60,000 - £69,999|2|2|
|£70,000 - £79,999|2|7|
|£80,000 - £89,999|5|-|
|£120,000 - £129,999|-|1|
|£130,000 - £139,999|1|1|
|£200,000 - £209,999|-|1|
|£210,000 - £219,999|1|-|
mhs homes limited
Page 56
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **12 Surplus on disposal of fixed assets**
|**12 Surplus on disposal of fixed assets**|||
|---|---|---|
|**Shared**
**ownership**
**Staircasing**
**Right to**
**Buy Sales**
**GROUP**
**2022**
**2022**
**£'000**
**£’000**|**Sale**
**of Land**
**2022**
**£'000**|**Total**
**Total**
**2022**
**2021**
**£'000**
**£’000**|
|Housing properties:
Disposal proceeds
**1,644**
**673**
Cost of disposals
**(1,112)**
**(38)**
Legal and other fees
**(4)**
**(5)**|**-**
**-**
**-**|**2,317**
1,034
**(1,150**
(724)
**(9)**
1|
|
**528**
**630**|**-**|
**1,158**
311|
|**mhs homes**
**2022**
**2022**
**£'000**
**£’000**|**2022**
**£'000**|**2022**
**2021**
**£'000**
**£'000**|
|Housing Properties:
Disposal proceeds
**703**
**673**
Cost of disposals
**(574)**
**(38)**
Legal and other fees
**(2)**
**(5)**|**4,738**
**(4,738)**
**-**|**6,114**
257
**(5,350**
(256)
**(7)**
3|
|
**127**
**630**|**-**|**757**
4|
|**13 Interest receivable and income from investments**|**13 Interest receivable and income from investments**||||
|---|---|---|---|---|
||**Group**|**Group**|**mhs**|**mhs**|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Interest receivable from group undertakings|
**-**|-|**513**|529|
|Interest receivable and similar income|**15**|31|**9**|26|
||**15**|31|**522**|555|
|**14 Interest payable and similar charges**|||||
||**Group**|**Group**|**mhs**|**mhs**|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Bank loans and overdrafts|**10,909**|10,884|**10,469**|10,517|
|Other fees|**495**|531|**493**|523|
||**11,404**|11,415|**10,962**|11,040|
|Amortisation of issue costs|**222**|189|**206**|175|
||**11,626**|11,604|**11,168**|11,215|
|Net interest on defined pension liability (note|**204**|258|**204**|258|
|26)|||||
|Interest capitalised on construction of housing|**(533)**|(450)|**(232)**|(265)|
|properties|||||
||**11,297**|11,412|**11,140**|11,208|
mhs homes limited
Page 57
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 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**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Surplus on ordinary activities before tax|**22,731**|**20,521**|**19,380**|**16,275**|
|Surplus on ordinary activities at the|||||
|standard rate of corporation tax in the UK|**4,319**|**3,899**|**3,682**|**3,092**|
|of 19% (2021 - 19%)|||||
|Effects of:|||||
|Group relief surrendered||**-**|**-**|-|
|Net income subject to charitable|**(4,239)**|**(3,843)**|**(3,682)**|**(3,092)**|
|exemptions|||||
|Adjustments in respect of prior years-|**(80)**|**(56)**|-|-|
|deferred tax|||||
|Total tax credit for period|-|-|**-**|-|
The aggregate current and deferred tax relating to items recognised in other comprehensive income is a nil charge (2021: nil charge).
mhs homes limited
Page 58
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**16 Tangible fixed assets - housing properties**||||||
|---|---|---|---|---|---|
||**General**|**Shared**|**General**|**Shared**|**Total**|
|**mhs homes group**|**needs**|**ownership**|**needs**|**ownership**||
||**completed**|**completed**|**under**|**Under**||
||||**construction**|**construction**||
|**Cost or valuation:**|**£'000**|**£'000**|**£'000**|**£’000**|**£’000**|
|**At 1 April 2021**|**493,718**|**48,126**|**31,125**|**5,653**|**578,622**|
|Additions - construction costs|24|56|23,298|3,568|26,946|
|Additions - works to replaced components|3,115|-|-|-|3,115|
|Completed schemes|27,989|6,021|(27,989)|(6,021)|-|
|Net transfer from investment properties|512|-|-|-|512|
|Transfer to current assets|-|(312)|-|-|(312)|
|Staircasing disposals|-|(1,141)|-|-|(1,141)|
|Property disposals|(4,906)|-|-|-|(4,906)|
|Disposal of replaced components|(436)|-|-|-|(436)|
|**At 31 March 2022**|**520,016**|**52,750**|**26,434**|**3,200**|**602,400**|
|**Depreciation:**||||||
|**At 1 April 2021**|**55,042**|**1,586**|**-**|**-**|**56,628**|
|Charge for the year|5,188|425|-|-|5,613|
|Eliminated on transfer to current assets|-|(2)|-|-|(2)|
|Eliminated on staircasing disposals|-|(30)|-|-|(30)|
|Eliminated on property disposals|(129)|-|-|-|(129)|
|Disposal of replaced components|(346)|-|-|-|(346)|
|**At 31 March 2022**|**59,755**|**1,979**|**-**|**-**|**61,734**|
|**Impairment:**||||||
|**At 1 April 2021**|**1,893**|**233**|**-**|**-**|**2,126**|
|Charge for theyear|115|-|-|-|115|
|**At 31 March 2022**|**2,008**|**233**|**-**|**-**|**2,241**|
|**Net book value at31 March 2022**|**458,253**|**50,538**|**26,434 **|**3,200**|**538,425**|
|Net book value at 31 March 2021|436,783|46,307|31,125|5,653|519,868|
mhs homes limited
Page 59
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**16 Tangible fixed assets - housing properties**|**(continued)**|||||
|---|---|---|---|---|---|
||**General**|**Shared**|**General**|
**Shared**|**Total**|
|**mhs homes limited**|**needs**|**ownership**|**needs**|**ownership**||
||**completed**|**completed**|**under**|**Under**||
||||**construction**|**construction**||
|**Cost or valuation:**|**£'000**|**£'000**|**£'000**|**£’000**|**£’000**|
|**At 1 April 2021**|**426,569**|**27,937**|**8,561**|**5,654**|**468,721**|
|Additions - construction costs|22|56|3,842|3,568|7,488|
|Additions - works to replaced components|3,066|-|-|-|3,066|
|Completed schemes|11,198|6,021|(11,198)|(6,021)|-|
|Transfer from investment properties|512|-|-|-|512|
|Transfer to current assets|-|(312)|-|-|(312)|
|Staircasing disposals|-|(589)|-|-|(589)|
|Property disposals|(4,906)|-|-|-|(4,906)|
|Disposal of replaced components|(392)|-|-|-|(392)|
|**At 31 March 2022**|**436,069**|**33,113**|**1,205**|**3,201**|**473,588**|
|**Depreciation:**||||||
|**At 1 April 2021**|**48,794**|**622**|**-**|**-**|**49,416**|
|Charge for the year|4,002|270|-|-|4,272|
|Eliminated on transfer to current assets|-|(2)|-|-|(2)|
|Eliminated on staircasing|-|(15)|-|-|(15)|
|Eliminated on property disposals|(129)|-|-|-|(129)|
|Disposal of replaced components|(325)|-|-|-|(325)|
|**At 31 March 2022**|**52,342**|**875**|**-**|**-**|**53,217**|
|**Impairment:**||||||
|**At 1 April 2021**|**1,426**|**-**|**-**|**-**|**1,426**|
|Charge for theyear|115|-|-|-|115|
|**At 31 March 2022**|**1,541**|**-**|**-**|**-**|**1,541**|
|**Net book value at31 March 2022**|**382,186**|**32,238**|**1,205**|**3,201 **|**418,830**|
|Net book value at 31 March 2021|376,349|27,315|8,561|5,654|417,879|
mhs homes limited
Page 60
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 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**|
||**2022**|
**2021**|
**2022**|
**2021**|
||**£'million**|
**£'million**|
**£'million**|
**£'million**|
|Estimated total EUV – SH|**661**|
625|
**585**|
567|
|Estimated EUV- SH value of properties charged|**513**|
510|
**497**|
493|
The net book value of housing properties may be further analysed as:
||**Group**|**Group**|**mhs**|
**mhs**|
|---|---|---|---|---|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Freehold|**535,725**|517,117|**417,772**|416,801|
|Long leasehold|**2,700**|2,751|**1,058**|1,078|
||**538,425**|519,868|**418,830**|417,879|
|**Interest capitalisation**|||||
|Interest capitalised in the year|**533**|450|**232**|265|
|Cumulative interest capitalised|**4,426**|3,892|**2,321**|2,089|
||||||
|Rate used for capitalisation %|**3.0**|3.7|**2.5**|2.5|
|**Works to properties**|||||
|Improvements to existing properties capitalised|**3,188**|2,785|**3,148**|2,769|
|Major repairs expenditure to income and|**4,088**|1,695|**3,398**|1,540|
||**7,276**|4,480|**6,546**|4,309|
mhs homes limited
Page 61
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **17 Other tangible fixed assets**
|**mhs homes group**|**Other**|**Freehold**|**Fixtures &**|**Total**|
|---|---|---|---|---|
||**offices**|**premises**|**fittings**||
||**£'000**|**£'000**|**£'000**|**£'000**|
|**_Cost or valuation_**|||||
|**At 1 April 2021**|**7,982**|**2,120**|**6,638**|**16,740**|
|Additions|-|-|128|128|
|At 31 March 2022|**7,982**|**2,120**|**6,766**|**16,868**|
|**_Depreciation_**|||||
|**At 1 April 2021**|**2,182**|**653**|**6,190**|**9,025**|
|Charge for year|147|27|234|408|
|**At 31 March 2022**|**2,329**|**680**|**6,424**|**9,433**|
|**_Net book value_**|||||
|**At 31 March 2022**|**5,653**|**1,440**|**342**|**7,435**|
|At 31 March 2021|5,800|1,467|448|7,715|
|**mhs homes limited**||**Freehold**|**Fixtures &**|**Total**|
|||**premises**|**fittings**||
|||**£'000**|**£'000**|**£'000**|
|**_Cost or valuation_**|||||
|**At 1 April 2021**||**2,120**|**6,638**|**8,758**|
|Additions||**-**|128|128|
|**At 31 March 2022**||**2,120**|**6,766**|**8,886**|
|**_Depreciation_**|||||
|**At 1 April 2021**||**653**|**6,190**|**6,843**|
|Charge for year||27|234|261|
|**At 31 March 2022**||**680**|**6,424**|**7,104**|
|**_Net book value_**|||||
|**At 31 March 2022**||**1,440**|**342**|**1,782**|
|**At 31 March 2021**||1,467|448|1,915|
mhs homes limited
Page 62
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **18 Investment Properties**
||**Head**|**Market**|**Market**|**Total**|
|---|---|---|---|---|
||**Office**|**Rent**|**Rent**||
||**Buildings**|**completed**|**under**||
||||**construction**||
|**mhs homes group**|**£’000**|**£'000**|**£'000**|**£'000**|
|**At 1 April 2021**|**2,554**|**72,471**|**3,879**|**78,904**|
|Units converted to social housing|-|(512)|-|(512)|
|Construction costs|-|9|2,866|2,875|
|Works to existing properties|-|22|-|22|
|Completed schemes|-|1,701|(1,701)|-|
|Fair value adjustment|-|6,169|-|6,169|
|**At 31 March 2022**|**2,554**|**79,860**|**5,044**|**87,458**|
|**mhs homes limited**||**£'000**|**£'000**|**£'000**|
|**At 1 April 2021**||**69,201**|**3,879**|**73,080**|
|Units converted to social housing||(512)|-|(512)|
|Construction costs||9|2,866|2,875|
|Works to existing properties||22|-|22|
|Completed schemes||1,701|(1,701)|-|
|Fair value adjustment||5,973|-|5,973|
|**At 31 March 2022**||**76,394**|**5,044**|**81,438**|
**The Group’s** market rented investment properties are measured at cost on initial recognition. In 2020 the fair value was determined by external valuers and in subsequent years updated based on the Land Registry. Changes in fair value are recognised in the statement of comprehensive income. The gain on revaluation of investment property arising of £6.169m (2021 – a gain of £4.085m) 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**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Historic cost|**48,768**|46,246|**45,361**|42,839|
|Accumulated depreciation|**(5,933)**|(5,700)|**(5,643)**|(4,787)|
||**42,835**|40,546|**39,718**|38,052|
mhs homes limited
Page 63
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **19 Fixed asset investments**
|**mhs homes group**
**Investments**|**mhs homes group**
**Investments**|**Listed**|**Other**|**Total**|
|---|---|---|---|---|
|||**Investments**|**Investments**||
||**£’000**|**£'000**|**£'000**|**£'000**|
|**At 1 April 2021**|**185**|**80**|**5**|**270**|
|Revaluation|-|6|-|6|
|**At 31 March 2022**|**185**|**86**|**5**|**276**|
|**mhs homes limited**|||**Total**|**Total**|
||||**2022**|**2021**|
||||**£**|**£**|
|Heart of Medway Housing Association|||**1**|1|
|mhs commercial services limited||**1,500,000**||1,500,000|
|Chatham Maritime K1 Developments Limited|||**1**|1|
|Chatham Maritime K1 Construction Limited|||**1**|1|
|Provision against mhs commercial services limited||
**(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|Ownership of Head||
03254705|-|
|Chatham Maritime K1 Construction|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.
2. 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
mhs homes limited
Page 64
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 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**|
||**2022**|**2021**|**2022**|**2021**|
||**£’000**|**£'000**|**£'000**|**£'000**|
|Materials|**26**|34|**26**|34|
|Shared ownership under construction|**1,724**|3,045|**1,724**|3,045|
|Shared ownership completed properties|**-**|89|**-**|89|
||**1,750**|3,168|**1,750**|3,168|
The amount taken to cost of sales in year was £3.456 million in Group and mhs homes.
|**21 Debtors**|**Group**|**Group**|**mhs**|
**mhs**|
|---|---|---|---|---|
||||**homes**|
**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|**Due within one year**|||||
|Rent and service charge arrears|**3,070**|3,127|**2,727**|2,826|
|Less: provision for doubtful debts|**(985)**|(900)|**(858)**|(800)|
||**2,085**|2,227|**1,869**|2,026|
|Prepayments|**1,428**|303|**735**|303|
|Taxes and social security|**33**|41|**-**|-|
|Other debtors|**315**|280|**278**|206|
|Loans to employees|**4**|24|**4**|24|
||**3,865**|2,875|**2,886**|2,559|
|**Due after one year**|||||
|Loan to Heart of Medway|**-**|-|**4,535**|1,659|
|Loan to Chatham Maritime K1 Development|**-**|-|**11,666**|11,916|
|Loan to Lord Kitchener|**-**|-|**-**|192|
||**-**|-|**16,201**|13,767|
## **22 Creditors: amounts falling due within one year**
||**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Loans and borrowings (note 24)|**4,800**|4,700|**4,800**|4,700|
|Trade creditors|**1,391**|790|**1,372**|791|
|Rent in advance|**1,230**|1,131|**1,117**|1,017|
|Taxation and social security|**-**|48|**17**|48|
|Other creditors|**543**|566|**537**|559|
|Amounts due to subsidiaries|**-**|-|**247**|83|
|Accruals|**5,107**|9,909|**4,202**|7,832|
|Loan interest and fees due|**1,756**|1,675|**1,643**|1,635|
|Sinking fund balances|**1,863**|1,803|**1,519**|1,540|
||**16,690**|20,622|**15,454**|18,205|
mhs homes limited
Page 65
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **23 Creditors: amounts falling due after more than one year**
||**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Loans (Note 24)|**291,139**|**285,839**|**271,139**|**275,839**|
|Less repayable within one year|**(4,800)**|**(4,700)**|**(4,800)**|**(4,700)**|
|Less issue costs|**(1,778)**|**(1,727)**|**(1,269)**|**(1,472)**|
|Loans and borrowings|**284,561**|**279,412**|**265,070**|**269,667**|
## **24 Loans and borrowings** : **Maturity of Debt**
||**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Less than one year|**4,800**|4,700|**4,800**|4,700|
|Between two and five years|**34,600**|32,600|**34,600**|32,600|
|In five years or more|**251,739**|248,539|**231,739**|238,539|
|Loans and borrowings|**291,139**|285,839|**271,139**|275,839|
During the year, £10 million was borrowed and £4.7 million of term debt repaid. The debt is comprised of £166 million of bank loans, which are repaid by instalments up to 2039, and five private placements. Three of the private placements are in mhs homes and are due as noted below.
- £40 million due 2051
- £30 million due 2044
- £40 million amortising from 2030 to 2056
Two private placements are in Heart of Medway,£10 million due in 2038 and £10 million due in 2055.
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 from 2023 to 2055. At 31 March 2022 **the Group** had unused facilities of £70 million all of which is charged and available to draw and a pre-arranged private placement of £10 million due in 2022.
Following the discontinuation of London Interbank Offered Rates (“LIBOR”) , all interest rates that were calculated in this manner were converted to “Sterling Overnight Index Average” (SONIA) during the year.
## **25 Financial instruments**
Information regarding the group’s exposure to and management of credit risk liquidity risk, market risk, cashflow and interest rate 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**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Financial assets measured at fair value:|**276**|270|**-**|-|
|**Total financial assets**|**276**|270|**-**|-|
mhs homes limited
Page 66
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **26 Pensions**
## **Defined benefit pension scheme**
**mhs homes limited** is an community admission body 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 2019 with the next formal valuation due in 2022. The contribution rate for **the Group** was 25.7% (2021:25.7%) for employer contributions and 5.5% to 11.4% (2021:5.5% 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 £343,428 (2021: £363,231). 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**|
|---|---|---|
||**2022**|**2021**|
||**£'000**|**£'000**|
|**_Reconciliation of present value of plan liabilities_**|||
|**At the beginning of the year**|58,287|49,087|
|Current service cost|482|372|
|Interest cost|1,151|1,136|
|Change in financial assumptions|(1,828)|10,550|
|Change in demographic assumptions|-|(560)|
|Experience loss|119|(739)|
|Benefits paid net of transfers in|(1,515)|(1,606)|
|Contributions by scheme participants|80|88|
|Unfunded pension payments|(40)|(41)|
|**At the end of the year**|56,736|58,287|
||**31 March**|**31 March**|
||**2022**|**2021**|
||**£'000**|**£'000**|
|**_Reconciliation of fair value of plan assets_**|||
|**At the beginning of the year**|47,950|37,988|
|Interest on assets|947|878|
|Return on assets less interest|47|10,352|
|Administration expenses|(29)|(31)|
|Contributions by employer excluding unfunded|305|322|
|Contributions by members|80|88|
|Benefits paid|(1,555)|(1,647)|
|**At the end of the year**|47,745|47,950|
mhs homes limited
Page 67
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
|**26 Pensions (continued)**|||||
|---|---|---|---|---|
|||**31**|**March**|**31 March**|
||||**2022**|**2021**|
||||**£’000**|**£’000**|
|Fair value of plan assets|||47,745|47,950|
|Present value of plan liabilities|||56,161|57,674|
|Deficit|||8,416|9,724|
|Present value of unfunded obligation|||575|613|
|Netpension scheme liability|||8,991|10,337|
|**Amounts recognised in other comprehensive**|**income are**|**31**|**March**|**31 March**|
|**as follows:**|||**2022**|**2021**|
||||**£’000**|**£’000**|
|Included in administrative expenses:|||||
|Service cost|||482|372|
|Net interest on the defined liability|||204|258|
|Administration expenses|||29|31|
||||715|661|
|**Analysis of actuarial gain recognised in other**||**31**|**March**|**31 March**|
|**comprehensive income**|||**2022**|**2021**|
||||**£’000**|**£’000**|
|Actual return less expected return on fund assets|||47|10,352|
|Experience gains on defined benefit obligation|||(119)|739|
|Change in demographic assumptions|||-|560|
|Changes in financial assumptions|||1,828|(10,550)|
||||1,756|1,101|
||**31 March**|**2022**|**31 March 2021**||
||**£’000**|**%**|**£’000**|**%**|
|_Composition of plan assets_|||||
|Equities|30,736|64|30,876|64|
|Gilts|291|1|285|1|
|Other bonds|6,592|14|5,988|13|
|Property|5,608|12|4,963|10|
|Cash|986|2|2,378|5|
|Target return portfolio|3,532|7|3,460|7|
|Total plan assets|47,745|100|47,950|100|
|Return on plan assets||2.10%||30.02%|
mhs homes limited
Page 68
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **26 Pensions (continued)**
_Principal actuarial assumptions used at the balance sheet date_
||**31 March**|**31 March**|
|---|---|---|
||**2022**|**2021**|
|Discount rates|2.60%|2.00%|
|Future salary increases|4.30%|3.85%|
|Future pension increases (CPI)|3.30%|2.85%|
|Life expectancy from age 65 years : Males (years)|21.6|21.6|
|Life expectancy from age 65 years : Females (years)|23.7|23.6|
## **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 £378,805 (2021: £368,352). At 31 March 2022 the number of staff participating in the scheme was 291 (2021: 303). There were no contributions outstanding or prepaid as at 31 March 2022.
## **27 Contingent liabilities**
## Parent Guarantees
mhs homes has guaranteed construction contracts for Heart of Medway and K1 Construction. At the year end the liabilities covered by these guarantees are £3,410,000 (2021: £23,216,000).
## Social Housing Grant
**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 2022, the value of grant received in respect of these properties that had not been disposed of was £34,146,000 (2021: £32,777,000). As the timing of any future disposal is uncertain, no provision has been recognised in these financial statements.
|**Total Social Housing Grant received**|**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|
|**or receivable to date is as follows:**|||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Recycled Capital Grant|**138**|46|**-**|-|
|Capital Grant|**34,146**|32,743|**16,405**|16,214|
|Total Grant|**34,284**|32,789|**16,405**|16,214|
## Building Safety Costs
In common with many social landlords, we are continuing to investigate our buildings to confirm that they are safe places to live. During these checks we have identified a block of flats which does not meet Building Regulations and as such additional work is required to achieve compliance. We have taken steps to reduce the risk to residents whilst we put in place a schedule of works to bring the building up to the required standard and we currently estimate the final cost of the works to be between £2.5 million and £3 million (of which £1.4 million to £1 million relates to Heart of Medway). The corrective work is currently anticipated to take place over the following two years. At present it is not clear whether the obligation resides with the developer, warranty provider or **The Group** , with the objective of minimising the financial impact on residents or leaseholders. In view of the uncertainties involved no provision has been made in respect of these costs.
mhs homes limited
Page 69
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 Notes forming part of the Financial Statements (Continued)**
## **28 Operating Lease**
**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**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Not later than one year|**356**|**76**|**356**|**76**|
|Later than one year and not later than|**388**|**569**|**388**|**569**|
|five years|||||
|Total|**743**|**645**|**743**|**645**|
## **Amounts receivable under operating leases as lessor**
||**2022**|**2021**|
|---|---|---|
||**£’000**|**£’000**|
|Not later than one year|**201**|**224**|
|Later than oneyear not later than fiveyears|**268**|**392**|
||**469**|**616**|
## **29 Capital Commitments**
||**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Commitments contracted|||||
|New build developments|**31,951**|33,189|**7,693**|15,596|
|Commitments approved by the board but|||||
|not contracted|||||
|New build developments|**21,966**|53,048|**8,917**|42,880|
||**53,917**|86,237|**16,610**|58,476|
Capital commitments for **the Group** and Association will be funded as follows:
||**Group**|**Group**|**mhs**|**mhs**|
|---|---|---|---|---|
||||**homes**|**homes**|
||**2022**|**2021**|**2022**|**2021**|
||**£'000**|**£'000**|**£'000**|**£'000**|
|Social Housing Grant|**3,553**|6,591|**296**|3,711|
|New loans|**10,000**|17,200|**-**|4,200|
|Sales of properties|**7,544**|10,683|**7,544**|10,683|
|Existing reserves|**32,820**|51,763|**8,770**|39,882|
||**53,917**|86,237|**16,610**|58,476|
mhs homes limited
Page 70
**FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2022 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 £18,089 (2021: £10,926) and the tenants had arrears balances of £1,193 at the 31 March 2022 (31 March 2021: nil). The Association provides management services, other services and loans to its subsidiaries. The Association also receives charges from its subsidiaries. The charges are set out below.
||**Management**|**charges**|**Interest**|**charges**|
|---|---|---|---|---|
|**Payable to mhs homes by**|**2022**|**2021**|**2022**|**2021**|
|**subsidiaries:**|**£'000**|**£'000**|**£'000**|**£'000**|
|Heart of Medway|**442**|461|**-**|**-**|
|Chatham Maritime K1 Development Limited|**-**|-|**513**|529|
||**442**|461|**513**|529|
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. Intra-group interest is charged by the Association to its subsidiaries at the rates incurred by the Association on its bank loans.
|**Entity**|**Entity receiving loan**|**Interest**|**At 1**|**Movement**|**At 31**|
|---|---|---|---|---|---|
|**granting loan**||**Rate****|
**April**||**March**|
||||**£’000**|**£'000**|**£'000**|
|mhs homes|Heart of Medway*|-|1,659|2,876|4,535|
|mhs homes|Chatham Maritime K1|4.36%|12,216|(250)|11,966|
||Development Limited*|||||
||||**13,875**|**2,626**|**16,501**|
## **Key Terms of repayment**
* Repayable by 2040
** Average rate charged across the year
mhs homes provided parent guarantees as disclosed in note 27. 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 £210.6 million (2021: £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 flows**|**Non-cash**||**At 31 March**|
|---|---|---|---|---|---|
||**2021**||**movement**||**2022**|
||**£'000**|**£'000**|**£'000**||**£'000**|
|Short term deposits|1,846|18||-|1,864|
|Cash at bank|36,401|(2,070)||-|34,331|
|**Cash and cash equivalents**|**38,247**|**(2,052)**||**-**|**36,195**|
|Loans and borrowings|(285,839)|(5,300)||**-**|(291,139)|
|**Net debt**|**(247,592)**|**(7,352)**||**-**|**(254,944)**|
mhs homes limited
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