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2011/12

Annual Report &Financial Statements

The meaning of community

Sanctuary Group is recognised as one of the country’s leading housing and care providers. A social enterprise, we operate under a not-for-profit umbrella with our surplus income reinvested into new homes and into developing better services for all our customers. Sanctuary owns and manages around 80,000 units of accommodation, including rented homes, sheltered and supported housing, places in care homes, and accommodation for students and key workers.

As an ethical and responsible business, our work extends beyond the provision of buildings and services. We understand what is implied by the word ‘community’ and through many diverse and imaginative initiatives, we work with our partners to devise ways in which people’s lives and communities can be changed and improved.

In short, we aim to make a positive difference to the lives of those in our society who face demanding challenges every day, such as the elderly and infirm, those with learning difficulties and young people from troubled backgrounds. Our experience at Sanctuary is that by working to build balanced communities we really can change people’s lives for the better.

ContentsGroup Statements

The meaning of community 3

Group Board Chair’s Statement 4

Group Chief Executive’s Statement 6

Annual Report and Financial Statements

The Board’s Report 8

Operating and Financial Review 14

Independent Auditors’ Report 22

Income and Expenditure Accounts 23

Statements of Total Recognised Surpluses and Deficits 23

Balance Sheets 24

Consolidated Cash Flow Statement 25

Notes to the Financial Statements 26

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I ended my statement in last year’s Annual Report on a note of positive optimism safe in the knowledge that our plans were on track to deliver yet another successful year.

My confidence was underlined when the Homes and Communities Agency awarded Sanctuary £90 million through its Affordable Homes Programme 2011-2015 - the highest allocation in England. Sanctuary’s success extended beyond the border when the Scottish Government and Glasgow City Council gave Sanctuary £10 million in grants for affordable housing, the highest of its kind in Scotland.

As ever, good corporate governance is critical to our ongoing success and to this end we have strengthened Sanctuary’s Group Board

Group Board Chair’s Statement

with the election of three new members, Elizabeth Meek CBE, Robert McComb and Professor Kenneth Gibb who join us in charting our future.

All three strands of Sanctuary’s business – housing, care and facilities management – are demonstrating the ability to adapt and grow in a rapidly changing business climate. Recent achievements include new contracts for domiciliary care, construction of affordable housing and care facilities, the acquisition of new care homes, and delivery of facilities management services for universities and key workers.

Social responsibility continues to be an integral part of Sanctuary’s operational activities. This includes the application of green technologies designed to help

residents combat fuel poverty and reduce CO2 emissions. For example, in the South West we have fitted 400 residents’ homes with PV solar panels giving them access to free electricity.

Ensuring that an organisation as large and diverse as Sanctuary stays focused on its core values is vital. It is crucial that we listen to our customers and provide a service in line with their expectations, whether they are a housing tenant, live in managed halls of residence, or reside in a care home.

Undoubtedly, our staff are instrumental to our success and it is thanks to their professionalism that we remain a leader in the sector.

Nick Baldwin Group Chair

Accomplishment – and more to come All three strands of Sanctuary’s business – housing, care and facilities management – are demonstrating the ability to adapt and grow in a rapidly changing business climate.

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Group Chief Executive’s Statement

Building on solid ground

Attracting, developing and retaining a skilled and motivated workforce continues to be an important priority for Sanctuary and never more so than today.

Our success in securing the highest grant allocations for new affordable housing in England and Scotland brings significant responsibilities, but our staff are primed and ready for the challenge. They are already demonstrating their commitment to this ambitious programme which will see the delivery of 5,000 homes at a combined capital investment of £750 million over the next four years.

A programme of this magnitude will bring a much needed stimulus to local economies, helping to sustain jobs and create new employment and training opportunities in communities up and down the country.

Underlining our commitment to tackling unemployment, especially among young people, Sanctuary has made a pledge to create new apprenticeships, including through our development partners on our numerous construction sites.

Our own award-winning apprenticeship programme is growing from strength to strength with numbers standing at over 200 and rising. Opportunities have been created in a variety of business areas, including our in-house estates service and maintenance teams, which we established after listening carefully to the needs of our customers.

Such has been the success of our maintenance service, that we are extending it to other organisations, allowing third

parties to benefit from the expertise our skilled workforce can provide. Furthermore, the additional revenue generated from this new commercial vehicle will be reinvested into innovative new services, ensuring an improved offering and value for money for all our customers.

During the past year Sanctuary has achieved considerable success and with new homes and services in the pipeline, we have an exciting future ahead of us.

We must not forget that our achievements depend on the talents and commitment of our people. Working to bring about important improvements in the quality of people’s lives, they demonstrate a professionalism to which others can only aspire.

Sanctuary continues to build on solid foundations and we look forward to the future with confidence.

David Bennett Group Chief Executive

Underlining our commitment to tackling unemployment, especially among young people, Sanctuary has made a pledge to create new apprenticeships, including through our development partners on our numerous construction sites.

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The Board’s Report The Board presents the Sanctuary Group Annual Report (the ‘Annual Report’) and the audited financial statements for the year ended 31 March 2012.

Legal structure and objectivesSanctuary Housing Association was registered on 5 May 1969 under The Industrial and Provident Societies Act 1965. Its objectives are the provision of:

•Good quality affordable housing and associated services to those in need;

•Specially designed housing and associated services to older people and people with long term health problems and disabilities; and

•Value for money services and advice for people in need.

Governance structureSanctuary Housing Association and its subsidiaries (together ‘the Group’) is controlled and governed through the Board of Sanctuary Housing Association which comprises up to seven non-executive members, one executive member (the Group Chief Executive), and up to three co-opted members.

All subsidiaries within the Group have their own boards which are responsible to the Board of Sanctuary Housing Association for overseeing the operations of each subsidiary.

Nick Baldwin BSc, MSc, CEng, CDir, FIMechE, FIET, FRSA (Age 59) Group Chair Chair of Nominations CommitteeElected a Member in September 2008. Nick previously worked for Powergen plc for over 13 years in a variety of roles; in his capacity as Chief Executive Nick completed the sale of Powergen to E.ON. He has held numerous non-executive and advisory roles and is currently interim Chair of the Office for Nuclear Regulation, Chair at Public Weather Service Customer Group and Chair of Ambitious About Autism. Prior to joining Sanctuary’s Board he was Chair of Worcester Community Housing for six years. Nick was elected Group Chair in November 2009. As Group Chair, he is an ex-officio member of all committees of the Board.

Jonathan Lander BSc (Hons), FCA (Age 56) Vice Chair of Group Board Chair of Group Audit Committee Chair of Remuneration CommitteeJonathan was co-opted onto the Group Board in July 2010 and formally elected in September 2010. Jonathan retired as a senior partner at PricewaterhouseCoopers LLP (‘PwC’) in 2008, having been with the organisation for over 30 years. At PwC Jonathan was lead assurance engagement partner to public companies, large private and private equity backed companies and businesses with overseas ownership, as well as being a Midlands Leadership team member responsible for strategy, marketing, communications and business development. He is the Chair of the board for the subsidiary Sanctuary Affordable Housing Limited.

David Bennett FCA, CCMI (Age 61) Group Chief Executive Chair of Supported Housing & Extra Care Committee David is a chartered accountant and has extensive experience in the housing association sector. He has been the Group Chief Executive of Sanctuary since 1992. Prior to that he was the Deputy Chief Executive at Sanctuary, and was Chief Executive at New Spiral Housing Association. Before joining Spiral he held senior positions with the Peabody Trust, the Samuel Lewis Trust and in the private sector. He is a Member of the Pensions Group and on subsidiary boards including Spiral Developments Limited, Sanctuary London Student Accommodation Limited and

Riverside Apartments Management Limited. He is a Member of the Committee of Management of Spiral (Number 2) Housing Association Limited and is a Member of the Council of Management of Sanctuary Housing Services. David also chairs Sanctuary Care Limited, Sanctuary Treasury Limited, The Hertford Housing Company Limited, Heart of England Housing and Care Limited, Sanctuary Capital Plc, Sanctuary Land Company Limited and the Committee of Management of Sanctuary Home Care Limited.

Rosemary Crawley JP, SRN, SCM, M Soc Sci (Age 68) Chair of Group Housing CommitteeElected a Member in September 2007, Rosemary is a Justice of the Peace on the supplemental list and is a qualified nurse and midwife. She was a Member of the Board of Shaftesbury Housing Group and is an independent Member of the Staffordshire Police Authority. She works as a volunteer and fundraiser for a day centre for older people of which she is honorary treasurer. Rosemary is currently a Member of the Committee of Management of Spiral (Number 2) Housing Association Limited and a Member of the Council of Management of Sanctuary Housing Services.

John Doughty FFA (Age 65) John was elected as a Member in September 2008 after co-option in May 2008. John is a Sanctuary tenant and has been a member of resident committees and subsidiary boards over the years. He has experience working in industrial groups such as Cadbury-Schweppes and GKN and currently works in a Worcester accountancy practice. His voluntary work has included membership of the Bromsgrove and Redditch Community Health Council and being treasurer for various charitable and non-profit organisations. He is currently a Member of the Committee of Management of Spiral (Number 2) Housing Association Limited and a Member of the Council of Management of Sanctuary Housing Services.

Kenneth Gibb MPhil, MA (Hons), MCIH (Age 48) Elected a Member in September 2011, Kenneth is Professor of Housing Economics at the University of Glasgow. He has conducted many research projects at the University, primarily in areas of housing economics, property markets and policy evaluation. Funders of his research have included Scottish Homes, the Scottish Office, the Scottish Government and the World Bank as well as private sector

Members of the Board

Membership details Group Board Group Audit Committee

Group Housing

Committee

Nominations Committee

Remuneration Committee

Supported Housing & Extra Care Committee

Nick Baldwin Chair - ✓ Chair ✓ ✓Jonathan Lander Vice Chair Chair - ✓ Chair -

David Bennett ✓ - - - - Chair

Rosemary Crawley ✓ - Chair ✓ - -

John Doughty ✓ ✓ ✓ ✓ - -

Kenneth Gibb (elected September 2011)

✓ - - ✓ ✓ -

Liz Meek (elected September 2011)

✓ - - ✓ ✓ -

Robert McComb (elected September 2011)

✓ ✓ - ✓ - -

Craig Moule ✓ - - - - -

Victoria Elvidge (resigned September 2011)

Vice Chair - Chair - Chair -

Nick Buckland (resigned September 2011)

✓ ✓ - - ✓ -

Valerie Leake (resigned September 2011)

✓ - - - - -

Barry Stanford (resigned September 2011)

✓ - - - - -

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organisations. Kenneth joined the Management Committee of Sanctuary Scotland Housing Association Limited in 1996 and served as its Chair from August 2006 to August 2011. He was also the Chair of Sanctuary Management Services Limited from November 2004 until August 2011.

Liz Meek CBE, BA (Hons) (Age 61)Elected a Member in September 2011, Liz is currently Chair of a London think-tank – the Centre for London. She is also involved with work to improve services for people with schizophrenia and for ex-offenders. Until 31 March 2011, Liz was Regional Director at the government office for the North West based in Manchester and Liverpool with responsibility for delivering projects and programmes for 11 Whitehall departments. Her long civil service career has involved specialisation in urban regeneration, combating social exclusion and worklessness, as well as housing association policy and the delivery of European funding streams.

Robert McComb MSc (Age 57) Elected a Member in September 2011, Robert is an investment banker with over 23 years experience at Dresdner Kleinwort. His banking experience has been in treasury, structured and asset finance and debt capital markets. Prior to retiring from Dresdner Kleinwort in 2007, Robert was treasurer of the bank’s $36bn structured credit fund, issuing bonds to investors worldwide. He was a senior member of the bank’s structured finance group, with specific responsibility for structured finance in France. Since retiring, Robert has been a non-executive chair of a venture capital funded hospitality business and is a board member of a small north London housing association. He continues to take a close interest in the financial markets.

Craig Moule BSc (Hons) (Age 46) Group Director – Finance and Resources Secretary and Co-opted Board MemberCraig joined Sanctuary in 1989 from Coopers & Lybrand. Craig is responsible for finance, portfolio analysis and planning, treasury, business information, procurement and legal services. He is the Secretary to Sanctuary and all its subsidiaries. Craig is the lead officer at Group Audit Committee meetings in addition to being a member of the Pensions Group. He is also on subsidiary boards including The Hertford Housing Company Limited, Sanctuary

Treasury Limited, Sanctuary London Student Accommodation Limited, Sanctuary Land Company Limited, Sanctuary Capital Plc and Sanctuary Affordable Housing Limited. He also chairs Riverside Apartments Management Limited, Sanctuary Maintenance Contractors Limited, Sanctuary Management Services Limited, Spiral Developments Limited and the Committee of Management of Spiral (Number 2) Housing Association Limited and St Albans Mount Management Limited. Craig is also Chair of the Council of Management of Sanctuary Housing Services.

Victoria Elvidge BA (Hons) (Age 50) Elected a Member in September 2004 and appointed Vice Chairman in September 2006. Victoria worked for ten years as a city solicitor. Victoria resigned from the Group Board, the Group Housing Committee and the Remuneration Committee in September 2011.

Nick Buckland MA, FIA, FPMI (Age 66) Elected a Member in September 2005, Nick is an Actuary and former Partner at Bacon & Woodrow. Nick resigned from the Group Board and as Chair of the Pensions Group in September 2011.

Valerie Leake (Age 70) Elected a Member in September 2008, Valerie is a retired school teacher. Valerie resigned from the Group Board in September 2011.

Barry Stanford RIBA (Age 70)Co-opted onto the Board in June 2007, Barry is an architect based in London and Stansted and founder of Stanford Eatwell & Associates. Barry resigned from the Group Board in September 2011.

Tenant Board Members have tenancies on normal commercial terms and cannot use their position to gain advantage in relation to tenancy agreements.

There are no related party transactions with councillors or employees of any related local authority that are not on normal commercial terms.

Executive DirectorsThe Board has delegated day-to-day management to a group of Executive Directors to control the operations of the Group. In addition to David Bennett (Board Member) and Craig Moule (Co-opted Board Member), the other Executive Director is:

Ian McDermott BSc (Hons), ARICS, MCIH, PGDip (Age 49) Chief Operating OfficerIan is a chartered surveyor and a member of the Chartered Institute of Housing. From February 1999, Ian was Chief Executive of Stonebridge Housing Action Trust and then from April 2005 he was Group Chief Executive for Shaftesbury Housing Group. Shaftesbury joined the Group in April 2007. As Chief Operating Officer, Ian is now responsible for driving operating performance measures and looking at how to create maximum value for all of Sanctuary’s stakeholders. Ian is on subsidiary boards including Sanctuary Management Services Limited, Sanctuary Maintenance Contractors Limited, Sanctuary London Student Accommodation Limited, Sanctuary Land Company Limited, Sanctuary Care Limited and Heart of England Housing and Care Limited. He is a Member of the Committee of Management of Sanctuary Home Care Limited and Spiral (Number 2) Housing Association Limited and a Member of the Council of Management of Sanctuary Housing Services. Ian is also Chair of the board of Sanctuary Green Technologies Limited. Ian is a member of the Group Housing Committee and the Supported Housing & Extra Care Committee.

Corporate governanceThe Board is working towards ensuring that the Group complies with the provisions of the National Housing Federation’s Excellence in Governance code.

In response to the evolving regulatory framework for housing, the Board has reviewed governance arrangements across the Group. As a result, changes have been implemented around the composition of the Group Board, remuneration of non-executive members, and the terms of reference of its substantive sub-committees.

During the year KPMG were appointed as the provider of Internal Audit services in conjunction with the in-house assurance team. A re-tendering process was conducted during the year for the provision of external audit services and PricewaterhouseCoopers LLP were re-appointed. The Group Audit Committee has approved a policy in relation to non-audit

work undertaken by PricewaterhouseCoopers LLP and KPMG. Where such work is expected to be in excess of a specified amount, the Chair of the Group Audit Committee must approve the work. Below that amount, the Group Director - Finance and Resources has authority to approve such work once he is satisfied that PricewaterhouseCoopers LLP or KPMG are the most appropriate providers. There is an annual review of the provision of, and fees for, non-audit services as part of Group Audit Committee’s review of the services provided by PricewaterhouseCoopers LLP and KPMG.

Statement of internal control The Board is ultimately responsible for ensuring that the Group maintains a system of internal control that is appropriate to the various business environments in which it operates. Internal control systems are designed to meet the particular needs of the Group and the risks to which it is exposed. The controls by their nature can provide reasonable but not absolute assurance against material misstatement or loss.

The Board has established key procedures to provide internal control and there are clear lines of responsibility for the creation and maintenance of the procedures through the designated senior executives of the Group. These controls are designed to give reasonable assurance with respect to:

•The reliability of financial information used within the Group or for publication;

•The maintenance of proper accounting records; and

•The safeguarding of assets against unauthorised use or disposition.

Major business risks are identified through a system of continuous monitoring. The financial control framework includes the following key features:

•The Board being directly responsible for strategic risk management;

•The adoption of formal policies and procedures including documentation of key systems and rules relating to a delegation of authorities which allows the monitoring of controls and restricts the unauthorised use of the Group’s assets;

•Experienced and suitably qualified staff being responsible for important business functions. Annual appraisal procedures have been established to maintain standards of performance;

The Board’s Report (continued)

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Statement of internal control (continued)

•Executives to monitor the key business risks and financial objectives allowing the Group to progress towards its financial plans set for the year and the medium term. Regular management accounts are prepared promptly providing relevant, reliable and up-to-date financial and other information including significant variances from budgets which are investigated as necessary;

•All significant new initiatives, major commitments and investment projects are subject to formal authorisation procedures; and

•The Group Audit Committee reviews reports from management, KPMG and from the in-house assurance team to provide reasonable assurance that control procedures are in place and are being followed. The Group Audit Committee receives an annual report on internal controls from the Executive Directors. The Group Audit Committee makes regular reports to the Board. The Group follows formal procedures for instituting appropriate action to correct weaknesses identified in the above reporting.

On behalf of the Board, the Group Audit Committee has reviewed the effectiveness of the systems of internal control in existence in the Group for the year ended 31 March 2012 and is not aware of any material changes at the date of signing the financial statements.

Arrangements for managing the risk of fraudThe Group has robust arrangements in place for managing the risks of fraud. These include:

•Prevention – the Group seeks to generate a strong anti-fraud culture supported by appropriate controls over operational and employment systems;

•Detection – the Group has implemented comprehensive systems and procedures to detect evidence of fraud and to facilitate and encourage the reporting of fraud;

• Investigation – the Group follows a comprehensive Group policy on fraud investigation and reporting; and

• Insurance – the Group has appropriate insurance cover in place to mitigate the potential financial losses associated with fraud.

The Group’s external statutory auditors, PricewaterhouseCoopers LLP, have audited the Group statutory financial statements. The Group Audit Committee has met with KPMG and PricewaterhouseCoopers LLP to discuss their work throughout the year.

Statement of responsibilities of the Board The Board is responsible for preparing the Board’s Report and the financial statements in accordance with applicable law and regulations.

The Friendly and Industrial and Provident Societies Act 1968 and registered social housing legislation require the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the Association and of the surplus of the Group and the Association for that period. In preparing these financial statements, the Board is required to:

•Select suitable accounting policies and then apply them consistently;

•Make judgements and estimates that are reasonable and prudent;

•State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Association will continue in business.

The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and of the Association and to enable it to ensure that the financial statements comply with the Friendly and Industrial and Provident Societies Act 1968 and the Industrial and Provident Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Requirements for Registered Social Landlords Determination 2006. It has general responsibility for taking reasonable steps to safeguard the assets of the Group and of the Association and to prevent and detect fraud and other irregularities.

Health and safetyIt is the clear intention of the Group to ensure, as far as reasonably practicable, the health, safety and welfare at work of all its employees. The Group undertakes to comply, as a minimum, with the provisions of the Health and Safety at Work Act 1974 and other relevant legislation to meet the objective of achieving the highest possible standards.

Political and charitable donationsThe Group made no donations to political organisations. The Group made donations to charitable organisations of £173,297 (2011: £180,070).

Employee involvementIt is Group policy to involve all employees in matters affecting their functions. At a formal level this takes place through the Staff Council where management consult with elected staff representatives. At an operational level a team briefing system is in place to keep all employees updated on core Group business issues.

Ethical businessThe Group is committed to conducting its business in an ethical and responsible manner. This involves making decisions which take into account not only economic considerations but social and environmental impacts too. It also means running our operations efficiently, supporting the communities where we work, providing training and employment opportunities and ensuring that the homes we own and operate are energy efficient. We understand that the work we do affects people’s lives and we are working hard to ensure that the difference we make is a positive one.

For more information about our commitment to ethical business and details of our performance over the last year, please visit our website.

Equality and diversityThe Group aims to be an open and inclusive organisation, where diversity is promoted and discrimination eliminated. Our single equality scheme – ‘Fairness for All’ – outlines our commitment to ensuring that our services meet the needs of all our diverse customers. It ensures that equality, diversity and human rights are integrated into the way we plan, develop and deliver our services, covering our internal functions as an employer and our external operations as a provider of housing, care and facilities management services.

Directors’ and Officers’ liability insuranceThe Group has maintained Directors’ and Officers’ liability insurance throughout the year and up to the date of approval of the financial statements.

Disclosure of information to auditorsIn the case of each of the persons who are Members of the Board at the date when this report was approved:

•So far as each of the Members of the Board is aware, there is no relevant audit information of which the Association’s auditors are unaware; and

•Each of the Members of the Board has taken all the steps that he/she ought to have taken as a Member of the Board to make himself/herself aware of any relevant audit information and to establish that the Association’s auditors are aware of that information.

Independent AuditorsPricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution concerning their reappointment will be proposed at the Annual General Meeting.

By order of the Board.

Craig Moule Secretary Group Director – Finance and Resources

28 June 2012

Registered Office Sanctuary House Chamber Court Castle Street Worcester WR1 3ZQ

The Board’s Report (continued)

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ActivitiesThe Group is a national provider of accommodation and related services. It operates in the following key areas: social housing, care, including care homes and domiciliary home care, and facilities management including student and key worker accommodation. The Group manages 78,215 (2011: 79,011) units of accommodation.

Operating reviewThe Group remains committed to providing high quality, well managed accommodation and services. As a Registered Provider, performance in terms of how the Group provides homes and delivers services is monitored by the Homes and Communities Agency against particular standards.

In addition to monitoring quality of services, the Group benchmarks its performance with other large housing associations. The Executive Directors regularly review processes to improve efficiency and ensure that best practice techniques are used. All of these measures help to identify areas for improvement and enable action to be taken where necessary.

Accommodation in managementThe Group has a range of property types and tenancies across the UK: general rented homes for people who need affordable accommodation; low-cost home ownership schemes for people making their first move into owner occupation; sheltered housing for rent and for purchase; care homes for people who need nursing support; as well as student and key worker accommodation.

LettingsDuring the year the Group had 3,119 (2011: 3,049) new general needs tenancies; 11.7% (364) (2011: 7.0% (214)) of these were new properties being let for the first time and 88.3% (2,755) (2011: 93.0% (2,835)) were existing properties being relet.

New residents are asked to provide basic details about their household when they move into their home and this information is used to provide services that meet the specific needs of residents.

The analysis of new general needs lettings in the year shows there was an increase in the number of people nominated to our homes by local authorities.

Method of access 2012 2011

% %

Nominated by local authority 65.6 47.5

Applicants from our own waiting list 24.6 26.1

Existing tenants who transferred to another Sanctuary property

7.9 10.0

Other 1.9 16.4

Ethnic origin 2012 2011

% %

White 83.3 84.1

Mixed 2.8 4.8

Black 7.7 6.4

Other 6.2 4.7

VoidsOne of the key performance indicators is the amount of money that the Group loses when properties become void and cannot be immediately relet.

The Group always aims to relet properties as soon as possible after the previous resident leaves. However, sometimes this is not possible because the property may need redecorating or refurbishing. At 31 March 2012, 198 (2011: 315) owned general needs rented homes were empty and ready for letting. A further 378 (2011: 278) properties were not available because they were either undergoing major improvement works or being held for decant purposes.

Void losses for general needs, sheltered and supported expressed as a percentage of rents and service charges receivable are:

Voids

Operating and Financial Review

Group Association

2012 2011 2012 2011

Social housing accommodation:

General needs housing 46,913 46,941 43,251 43,918

Sheltered & supported housing accommodation 13,888 13,810 13,160 13,386

Shared ownership 2,831 2,777 2,829 2,777

Social housing leased outside Group tenancy agreement 72 70 72 70

63,704 63,598 59,312 60,151

Non-social housing accommodation:

Student & key worker 7,974 9,008 7,974 9,008

Registered care homes 2,675 2,513 2,208 2,056

Home ownership 3,671 3,698 3,543 3,570

Commercial 105 101 102 98

Market rented accommodation 86 93 86 93

14,511 15,413 13,913 14,825

Total units in management 78,215 79,011 73,225 74,976

Some units in management within the 2011 comparative have been reclassified to align to the activities of the Group.

At the same date the Group had 5,552 (2011: 2,414) units under development of which 1,404 (2011: 2,055) were onsite and a further 3,848 (2011: 359) were committed. 1,379 owned units are managed by third parties (2011: 1,404).

Nominated bylocal authority

Applicants from ourown waiting list

Existing tenants who transferredto another Sanctuary property

Other

16.4%

83.3%84.1%

2.8%4.8%

7.7%6.4%

6.2%4.7%

1.9%

10.0%7.9%

26.1%

24.6%

47.5% 65.6%

0 10 20 30 40 50 60 70 80

White

Mixed

Black

Other

0 20 40 60 80 100

2012

2011

0.0 0.3 0.6 0.9 1.2 1.5

2012

2011

0 1 2 3 4 5

1.2%

4.26%

4.41%

1.4%

Excellent58%58%

29%30%

8%6%

5%6%

Good

Could do better

Poor

0 10 20 30 40 50 60

2012

2011

Nominated bylocal authority

Applicants from ourown waiting list

Existing tenants who transferredto another Sanctuary property

Other

16.4%

83.3%84.1%

2.8%4.8%

7.7%6.4%

6.2%4.7%

1.9%

10.0%7.9%

26.1%

24.6%

47.5% 65.6%

0 10 20 30 40 50 60 70 80

White

Mixed

Black

Other

0 20 40 60 80 100

2012

2011

0.0 0.3 0.6 0.9 1.2 1.5

2012

2011

0 1 2 3 4 5

1.2%

4.26%

4.41%

1.4%

Excellent58%58%

29%30%

8%6%

5%6%

Good

Could do better

Poor

0 10 20 30 40 50 60

Nominated bylocal authority

Applicants from ourown waiting list

Existing tenants who transferredto another Sanctuary property

Other

16.4%

83.3%84.1%

2.8%4.8%

7.7%6.4%

6.2%4.7%

1.9%

10.0%7.9%

26.1%

24.6%

47.5% 65.6%

0 10 20 30 40 50 60 70 80

White

Mixed

Black

Other

0 20 40 60 80 100

2012

2011

0.0 0.3 0.6 0.9 1.2 1.5

2012

2011

0 1 2 3 4 5

1.2%

4.26%

4.41%

1.4%

Excellent58%58%

29%30%

8%6%

5%6%

Good

Could do better

Poor

0 10 20 30 40 50 60

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RentsFor the majority of our social housing stock the annual rent increase was calculated with reference to the September 2010 published retail prices index for inflation which resulted in a basic increase of 5.1%.

The Group has various different types of social housing tenancies, the rents for which are set in accordance with the Regulatory Framework for Social Housing in England from April 2012 Annex A Rent Standard Guidance. This replaces previous Housing Corporation Circulars.

Average weekly rents

General needs tenancies 2012 2011

Type of property £ £

Bedsits 67.90 63.86

1 Bed 71.06 67.45

2 Bed 81.90 77.31

3 Bed 92.41 87.20

4 Bed 105.09 98.93

5 Bed 108.56 102.15

6+ Bed 114.83 116.38

Rent arrearsAnother key performance indicator is the amount of unpaid arrears. At 31 March 2012 rent arrears represented 4.26% of rental income, a decrease in comparison with 2011 (4.41%) which was primarily attributable to improved timing of payments from local authorities.

Monitoring of rent collection and arrears levels is a key management function. Staff throughout the country have worked hard to keep arrears under control, the dedicated debt recovery teams in the regions work closely with housing officers to maximise rent collection and to avoid debt escalating by taking early and prompt action. These specialist teams work with residents who have difficulty paying rent and, where appropriate, refer them to debt advice agencies to investigate whether they may be eligible for greater financial support or housing benefit.

Rent arrears

Repairs serviceThe centralised Customer Service Centre based in Hull deals with all calls from residents requesting repairs and we believe that this is improving housing management efficiency.

The centre has had a busy year processing 264,883 (2011: 244,903) requests and operates 24 hours a day, 7 days a week improving accessibility to the service and meeting the needs of residents.

All repairs that are reported to the Customer Service Centre are dealt with in order of priority depending upon the type of repair and the individual needs of the resident. Customer advisers are trained to ask the right questions of callers to identify the potential repairs required and to establish the needs of the resident. Completed repairs are monitored to see if target timescales are achieved.

Every time a repair is carried out, residents are asked to complete a brief questionnaire about the repairs service. This allows for the opportunity to follow up any immediate problems. To encourage residents to return these questionnaires there is a monthly prize draw to win £100 of supermarket vouchers. Of those who replied, 87% (2011: 88%) of residents rated the service excellent or good.

The table below shows residents’ satisfaction with the repairs service for the last two years.

Repairs satisfaction

2012 2011

Level of service % %

Excellent 58 58

Good 29 30

Could do better 8 6

Poor 5 6

Complaints analysisIn the year to March 2012 we received 35 enquiries from the Housing Ombudsman (2011: 20), plus eight carried over from the previous year. Six of those cases were outside the Ombudsman’s jurisdiction. Seven investigations have been completed, and four investigations are ongoing. Of the completed investigations, maladministration was found in three cases and no maladministration was found in four cases.

Operating and Financial Review (continued)

Nominated bylocal authority

Applicants from ourown waiting list

Existing tenants who transferredto another Sanctuary property

Other

16.4%

83.3%84.1%

2.8%4.8%

7.7%6.4%

6.2%4.7%

1.9%

10.0%7.9%

26.1%

24.6%

47.5% 65.6%

0 10 20 30 40 50 60 70 80

White

Mixed

Black

Other

0 20 40 60 80 100

2012

2011

0.0 0.3 0.6 0.9 1.2 1.5

2012

2011

0 1 2 3 4 5

1.2%

4.26%

4.41%

1.4%

Excellent58%58%

29%30%

8%6%

5%6%

Good

Could do better

Poor

0 10 20 30 40 50 60

Nominated bylocal authority

Applicants from ourown waiting list

Existing tenants who transferredto another Sanctuary property

Other

16.4%

83.3%84.1%

2.8%4.8%

7.7%6.4%

6.2%4.7%

1.9%

10.0%7.9%

26.1%

24.6%

47.5% 65.6%

0 10 20 30 40 50 60 70 80

White

Mixed

Black

Other

0 20 40 60 80 100

2012

2011

0.0 0.3 0.6 0.9 1.2 1.5

2012

2011

0 1 2 3 4 5

1.2%

4.26%

4.41%

1.4%

Excellent58%58%

29%30%

8%6%

5%6%

Good

Could do better

Poor

0 10 20 30 40 50 60

2012

2011

18 19

Op

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Performance in the yearThe results for the year are set out in the Income and Expenditure Accounts on page 23.

The Group (excluding joint ventures) has continued to expand during the year increasing turnover by £26.5 million (6.5%) although units in management decreased by 796 (1.0%). Group operating surplus increased to £104.4 million (2011 restated: £94.3 million). Operating margins increased to 24.2% (2011 restated: 23.3%) whilst interest cover increased to 1.73 (2011 restated: 1.68).

Overall the Group made a surplus for the year before taxation of £23.7 million (2011 restated: £46.9 million). The net surplus includes £3.0 million (2011 restated: £8.7 million loss) from the sale of properties. Also included within the surplus for the year is £2.2 million (2011: £4.1 million) in respect of amortisation of the cash flow hedge reserve and changes in the value of unhedged derivative financial instruments. The Group complied with all its loan covenants.

During the year two subsidiaries transferred their engagements to Sanctuary Housing Association, Shaftesbury Housing Association on 26 April 2011 and The Beth Johnson Housing Association Limited on 28 December 2011. Further detail is given in note 31.

Prior year adjustmentsThe Group has adopted the Statement of Recommended Practice for Registered Social Landlords (Revised 2010) (‘SORP 2010’). Certain aspects of this give rise to a change in accounting policy as described in note 1.

The adjustment has increased the surplus by £22.2 million for the year ended 31 March 2011 and increased revenue reserves by £403.6 million.

Post balance sheet eventsOn 26 April 2012 the Group, through its subsidiary Sanctuary Capital Plc, issued £300 million 5.0% Secured Bonds. The proceeds of the bond issue will be used to contribute towards a £750 million national development programme over the next four years.

On 27 June 2012 the Group completed the transfer of engagement of its subsidiary Asra Midlands Housing Association Limited to Asra Greater London Housing Association Limited. In return Sanctuary Housing Association acquired a portfolio of seven care homes and two supported schemes. A provision for loss on disposal has been disclosed in the financial statements. See notes 9 and 10.

The table opposite highlights the underlying surplus for the year and summarises the overall results in comparison to previous years:

2012 2011 2010 2009 2008

£m

Restated £m

£m

£m

£m

Turnover: Group and share of joint venture 435.2 408.5 369.0 343.8 310.5

Less: Share of joint venture turnover (3.7) (3.5) (3.4) (3.4) (3.2)

Group turnover 431.5 405.0 365.6 340.4 307.3

Cost of sales (3.5) (8.0) (9.2) (2.7) (0.5)

Operating costs (323.7) (302.8) (261.5) (249.3) (231.0)

Operating surplus 104.3 94.2 94.9 88.4 75.8

Share of operating surplus in joint venture 0.1 0.1 0.1 0.1 0.1

Group operating surplus 104.4 94.3 95.0 88.5 75.9

Net gain on business combinations - 39.0 - - -

Surplus/(loss) on sale of fixed assets 3.0 (8.7) 1.1 1.5 6.0

Net interest payable in respect of loan instruments (85.9) (81.1) (76.0) (66.6) (62.2)

Gain/(loss) on revaluation of investments - - 0.4 (0.5) -

Financing (cost)/income - (0.7) (1.2) (0.4) 0.5

Net amounts credited in respect of derivative financial instruments

2.2 4.1 4.5 7.4 6.8

Surplus for the year before tax 23.7 46.9 23.8 29.9 27.0

Taxation (0.1) - - (0.1) -

Surplus for the year after tax 23.6 46.9 23.8 29.8 27.0

% % % % %

Operating costs (including cost of sales) as % of Group turnover

75.83 76.74 74.04 74.03 75.33

Net interest payable as % of Group turnover 19.91 20.02 20.79 19.57 20.24

Operating margin (operating surplus as a % of Group turnover)

24.17 23.26 25.96 25.97 24.67

Net margin (surplus for the year after tax as a % of Group turnover)

5.47 11.58 6.51 8.75 8.79

Interest cover (operating surplus plus depreciation/net interest payable)

1.73 1.68 1.74 1.66 1.66

Following the implementation of the SORP 2010 from 1 April 2011 the comparatives have been restated to include adjustments for the recognition of consolidated gains on business combinations arising from new entities joining the Group and to recognise a provision for loss on sale of fixed assets.

At 31 March 2012 the Group owned properties with a depreciated cost of £3,482.1 million (2011: £3,327.6 million). The Group had borrowings totalling £1,477.1 million (2011: £1,434.3 million) of which £24.9 million (2011: £26.9 million) falls due for repayment within one year. Reserves at the year end amounted to £668.8 million (2011 restated: £650.2 million).

Operating and Financial Review (continued)

20 21

Op

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and

Fin

ancial R

eview

Key risks of the GroupThe Group operates a comprehensive risk mapping process as part of its annual business planning cycle. This process identifies a number of external factors which affect the Group. These factors include:

•Differential inflationary pressures – The majority of the Group’s income is reviewed annually by reference to retail price indices. Although income levels remain in line with general cost inflation there is a risk that the Group is exposed to real cost inflation. The Group looks to use the benefits of economies of scale, competitive tendering, fixed price contracts and national procurement arrangements to mitigate risks of cost inflation in addition to initiatives such as the Internal Maintenance Service. The Group continues to base financial plans on prudent inflation assumptions to ensure the impact of inflation can be managed.

•Welfare Reform Bill – The Welfare Reform Bill sets out proposed changes to benefit payments including the universal credit, alterations to benefit caps and changes to the method of payment that could impact on the cash flows and debt collection approach within the Group. The Group is participating in a pilot scheme to assess the impact of direct payment of Housing Benefit and is developing strategies to maximise rent collection.

•Austerity – Pressure on government revenue budgets, in particular adult social care and supporting people funding, have had an impact on local authority funding, the housing association sector and in particular Sanctuary’s care and support business. The risk of reductions in fee income is managed through the review of scheme viability and changes to the services offered.

•Changes in the housing market – In the year the Group was awarded £90 million towards building new affordable housing. The reduction in levels of capital grant funding for new developments is partially offset by a reliance on higher affordable rents, conversion of existing social rented stock, shared ownership and outright sales to cross-subsidise new affordable housing development. The impact of these changes will alter Group cash flows, result in higher gearing and give greater exposure to the general housing market. The Group has updated the Five Year Plan including modelling a range of sensitivities to accommodate a range of scenarios and to ensure the impact of the changes can be managed and funded.

•Cost and availability of funding – The changes in the economic and banking environment have impacted on both the pricing and availability of private finance for the housing association sector. Low costs of funding have historically been in part linked to strong regulation. The new regulatory arrangements have been reviewed by funders and credit rating agencies who remain satisfied with the arrangements in place. Sanctuary has secured committed credit lines with funders and has continued to reduce the cost of funds through preserving external credit ratings, through meeting regulatory financial viability requirements and maintaining a close dialogue with investors and partners.

•Compliance with legislation – Legislative or regulatory breaches can have a material and adverse impact on organisations, stakeholders and directors with significant financial, reputational and individual consequences. Sanctuary dedicates specialist teams to monitor and co-ordinate compliance activities. In the year the Group has put in place revised governance arrangements to ensure there is full compliance with economic and consumer regulatory requirements. In addition all staff undertake training to ensure continued good practice and compliance.

The Executive Directors and Group Audit Committee review and scrutinise the risk maps for all Group entities. The Board approves the Group Risk Map.

Investment for the futureThe Executive Directors are continually looking to grow the Group’s business and improve organisational performance and service to customers.

Investing in existing and new properties remains at the centre of the Group’s asset management and development strategies. In total the Group has incurred £199.5 million (2011: £211.1 million) on property additions in the year. A further £48.2 million has been incurred repairing and maintaining existing property (2011: £43.2 million).

The Group was successful in a £90 million bid to the Homes and Communities Agency for a four year grant funded affordable housing development programme. The programme will see a total capital investment of £750 million. This has already led to a greater involvement of private finance, evidenced by the issue of £300 million 5% Secured Bonds on 26 April 2012. Over time there will also be changes to the range of housing markets the Group operates in and the mix of social housing stock. The Group has put in place the correct structures and resources to ensure it is well placed to deal with the development programme.

Treasury managementThe Group’s treasury activities are coordinated through the central treasury function and overseen by the Group Director – Finance and Resources. The central treasury function operates within a framework of clearly defined Board approved policies and procedures including permissible funding and hedging instruments, exposure limits and a system of authorities for approval and execution of transactions.

The central treasury function prepares regular reports for the Group Director – Finance and Resources who reports directly to the Board on all treasury matters. The central treasury function is subject to review by the in-house assurance team.

Treasury risk managementThe Group has used derivatives within its borrowing agreements to manage interest rate and currency risk arising from its sources of finance. It is the Group’s policy that no speculative trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees the management of these risks. Further information is contained within note 17.

Funding and liquidityThe Group funds its operations through a mixture of retained reserves, grants and borrowings, including bank and capital market borrowings and leasing.

All of the Group’s facilities are arranged by the central treasury function. Funds raised are either directly lent to operating subsidiaries, are lent from Sanctuary Housing Association or are lent from the Group borrowing vehicle, Sanctuary Treasury Limited, on commercial terms.

The Group’s policy is to minimise cash held whilst ensuring that loan facilities are in place to cover 12 months cash flow or more. Cash flow requirements are monitored through the Group’s rolling projections.

Group borrowings currently comprise 92.2% fixed rate debt (2011: 96.3%).

Going concernThe Board confirms it has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly it continues to adopt the going concern basis in preparing the Group’s financial statements.

By order of the Board.

Craig Moule Secretary Group Director – Finance and Resources

28 June 2012

Registered Office Sanctuary House Chamber Court Castle Street Worcester WR1 3ZQ

Operating and Financial Review (continued)

We have audited the financial statements of Sanctuary Housing Association for the year ended 31 March 2012 which comprise the Group and Association Income and Expenditure Accounts, the Group and Association Statement of Total Recognised Surpluses and Deficits, the Group and Association Balance Sheet, the Consolidated Cash Flow Statement, the Reconciliation of Consolidated Net Cash Flow Movement in Net Debt and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Respective responsibilities of the Board and AuditorsAs explained more fully in the Statement of responsibilities of the Board, set out on page 12, the Board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (ISAs) (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Association’s members as a body in accordance with Section 9(1) and Section 13(5) of the Friendly and Industrial and Provident Societies Act 1968 and the Housing and Regeneration Act 2008 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and Association’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the board; and the overall presentation of the

financial statements. In addition, we read all the financial and non-financial information in the Sanctuary Group Annual Report and Financial Statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion the financial statements:

•give a true and fair view of the state of the Group’s and Association’s affairs as at 31 March 2012 and of the Group’s and Association’s income and expenditure and the Group’s cash flows for the year then ended; and

•have been properly prepared in accordance with the Friendly and Industrial and Provident Societies Act 1968 and the Industrial and Provident Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and The Accounting Requirements for Registered Social Landlords General Determination 2006.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Friendly and Industrial and Provident Societies Act 1968 requires us to report to you if, in our opinion:

• the Association has not kept proper books of account in accordance with Section 1(1)(a) of the Friendly and Industrial and Provident Societies Act 1968; or

•a satisfactory system of control over transactions has not been maintained in accordance with Section 1(1)(b) of the Friendly and Industrial and Provident Societies Act 1968; or

• the financial statements are not in agreement with the books of account; or

•we have not received all the information and explanations we need for our audit.

PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Birmingham 28 June 2012

Group Association

Notes 2012 2011 2012 2011

Restated Restated

£m £m £m £m

Turnover: Group and share of joint venture 435.2 408.5

Less: Share of joint venture turnover 32 (3.7) (3.5)

Turnover 2 431.5 405.0 304.8 212.4

Cost of sales 2 (3.5) (8.0) (3.1) (4.7)

Operating costs 2 (323.7) (302.8) (224.6) (157.9)

Other income 2 - - 4.8 4.8

Operating surplus 4 104.3 94.2 81.9 54.6

Share of operating surplus in joint venture 32 0.1 0.1 - -

Group operating surplus 4 104.4 94.3 81.9 54.6

Net gain on business combinations 4,31 - 39.0 220.4 143.8

Surplus/(loss) on sale of fixed assets 4a 3.0 (8.7) 2.8 0.3

Interest receivable and similar income 6a 1.6 2.1 2.6 5.2

Interest payable and similar charges 6b (85.3) (79.1) (70.4) (49.9)

Financing cost 25 - (0.7) (0.1) (0.7)

Surplus on ordinary activities before taxation 23.7 46.9 237.2 153.3

Taxation on surplus on ordinary activities 7 (0.1) - (0.1) -

Surplus for the year after taxation 2,23 23.6 46.9 237.1 153.3

There is no material difference between the surplus on ordinary activities before taxation and the surplus for the financial year stated above and their historical cost equivalents.

The results for the current year and prior years relate wholly to continuing activities.

Statements of Total Recognised Surpluses and Deficits for the year ended 31 March 2012

Group Association

Notes 2012 2011 2012 2011

Restated Restated

£m £m £m £m

Surplus for the year 23.6 46.9 237.1 153.3

Unrealised surplus on revaluation of listed investments 23 1.3 - 1.8 -

Actuarial (loss)/gain on pension schemes 23,25 (9.9) 13.1 (9.5) 10.9

Gain on hedged instruments 23 5.7 4.0 5.7 3.8

Total surplus recognised for the year 20.7 64.0 235.1 168.0

Prior year adjustment 24 22.2 - 142.6 -

Total surplus recognised since the last annual report 42.9 64.0 377.7 168.0

The notes on pages 26 to 78 form part of these financial statements.

Independent Auditors’ Report to the Members of Sanctuary Housing Association

Income and Expenditure Accounts for the year ended 31 March 2012

The maintenance and integrity of the Association’s website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.22 23

Balance Sheets as at 31 March 2012

Group Association

Notes 2012 2011 2012 2011

Restated Restated

Fixed assets £m £m £m £m

Intangible assets 8 0.6 0.7 0.5 0.6

Properties – depreciated cost 9 3,482.1 3,327.6 3,148.6 2,287.7

Less: Social Housing Grant 9 (1,132.0) (1,108.4) (1,109.5) (846.1)

Other grants 9 (299.9) (275.3) (166.6) (146.4)

Derivative financial instruments 12 20.3 13.9 20.3 13.9

2,071.1 1,958.5 1,893.3 1,309.7

Other operating assets 10 62.2 54.5 60.3 50.5

Investments 11 39.5 36.9 39.4 19.3

Investments in subsidiaries 30 - - 0.1 0.1

Investments in joint ventures 32 - - 0.8 0.9

– share of gross assets 32 10.5 10.5 - -

– share of gross liabilities 32 (9.2) (9.3) - -

2,174.1 2,051.1 1,993.9 1,380.5

Current assets

Debtors due within one year 13 59.9 55.5 61.2 65.3

Debtors due after more than one year 13,20 54.7 55.0 18.7 45.0

Assets held for sale 14 5.0 6.1 3.5 4.1

Cash at bank and in hand 25.7 73.4 1.6 30.9

145.3 190.0 85.0 145.3

Creditors: Amounts falling due within one year 15 (144.0) (142.0) (120.9) (105.7)

Net current assets/(liabilities) 1.3 48.0 (35.9) 39.6

Total assets less current liabilities 2,175.4 2,099.1 1,958.0 1,420.1

Creditors: Amounts falling due after more than one year 16 1,460.6 1,411.0 1,278.4 981.3

Provision for liabilities and charges 21 3.1 4.5 0.3 1.7

Pension liability 25 42.9 33.4 40.4 31.2

1,506.6 1,448.9 1,319.1 1,014.2

Capital and reserves

Share capital 22 - - - -

Cash flow hedge reserve 23 10.8 7.2 10.6 7.0

Revaluation reserve 23 3.3 2.0 3.1 1.3

Revenue reserve 23 654.1 640.6 625.0 397.4

Restricted reserve 23 0.6 0.4 0.2 0.2

668.8 650.2 638.9 405.9

2,175.4 2,099.1 1,958.0 1,420.1

Authorised and approved by the Board on 28 June 2012 and signed on its behalf by:

Nick Baldwin David Bennett Craig Moule Group Chair Board Member Secretary Group Chief Executive Group Director – Finance and Resources

Consolidated Cash Flow Statement for the year ended 31 March 2012

Notes 2012 2011

£m £m

Net cash inflow from operating activities 28(a) 149.2 142.9

Servicing of finance and returns on investments 28(b) (86.6) (85.1)

Capital expenditure and financial investment 28(b) (152.0) (171.4)

Acquisitions 28(b) - 6.5

Cash outflow before use of liquid resources and financing (89.4) (107.1)

Financing 28(b) 41.7 129.3

(Decrease)/increase in cash in the year 28(c) (47.7) 22.2

Reconciliation of Consolidated Net Cash Flow to Movement in Net Debt

Notes 2012 2011

£m £m

(Decrease)/increase in cash in the year 28(c) (47.7) 22.2

Cash inflow from increase in debt and lease financing 28(b) (41.7) (129.3)

Change in net debt resulting from cash flows 28(b) (89.4) (107.1)

Debt arising on acquisitions 28(c) - (17.7)

Non-cash and fair value movements 28(c) 5.4 2.7

Movement in net debt in the year (84.0) (122.1)

Net debt at start of year 28(c) (1,347.0) (1,224.9)

Net debt at end of year 28(c) (1,431.0) (1,347.0)

24 25

1. Principal accounting policiesThe Group’s and Association’s financial statements (‘the financial statements’) have been prepared in accordance with applicable Financial Reporting Standards in the United Kingdom, Industrial and Provident Societies Acts 1965 to 2002, Schedule 1 to the Housing and Regeneration Act 2008, the Accounting Requirements for Registered Social Landlords General Determination 2006 and the Statement of Recommended Practice for Registered Social Landlords issued in March 1999 and updated in 2005, 2008 and 2010 (the ‘SORP’). The principal accounting policies are set out below.

Basis of accounting

The Group’s and Association’s financial statements are prepared on both a going concern and historical cost basis of accounting, except for the revaluation of listed investments.

Changes in accounting policy

During the year, the Group and Association have adopted the Statement of Recommended Practice: Accounting by Registered Social Landlords (Revised 2010). This impacts mainly the accounting treatment for business combinations and capital expenditure on housing properties.

A prior year adjustment has been recognised in respect of the change in accounting treatment of gains on business combinations resulting in the restatement of the Income and Expenditure Account for the prior year transaction and a reclassification between reserves for all historic negative goodwill brought forward. During the year gains on business combinations arising on transfers of engagement have been recognised in the Income and Expenditure Account of the Association.

SORP 2010 also provides further guidance on the application of component accounting. The Group has therefore revised its estimates of useful economic lives. For the Group and Association there has been no change in accounting policy in this regard.

Consolidation

In accordance with Financial Reporting Standard 2 ‘Accounting for subsidiary undertakings’, the financial statements include the consolidated position of Sanctuary Housing Association, its subsidiaries and joint venture. Subsidiaries are entities over which, either directly or indirectly, the Association has control through the power to govern financial operating policies so as to obtain benefit from their activities. Uniform accounting policies have been adopted across the Group, where applicable. The results of subsidiaries acquired or sold during the year are included in the Group’s results from the

date of acquisition or up to the date of disposal. All acquisitions are accounted for at fair value in line with acquisition accounting. Assets and liabilities acquired are measured at fair value at the date of acquisition. Intra-group balances, transactions, income and expenses are eliminated.

Related party transactions

The Association is exempt under the terms of Financial Reporting Standard 8 ‘Related party disclosures’ from disclosing related party transactions with entities that are part of the Sanctuary Group. Transactions in respect of our Joint Venture are discussed in note 29.

Joint ventures

Joint ventures are accounted for in accordance with Financial Reporting Standard 9 ‘Associates and Joint Ventures’ in the consolidated financial statements using the ‘gross equity’ method and in the Association’s individual financial statements as a fixed asset investment, shown at cost, less any amounts written off.

Turnover

Turnover represents rental and service charge income receivable, net of void losses, income from developments for resale (including shared ownership first tranche sales), management fees receivable (net of VAT) and gross interest from finance leases. Turnover is recognised as it falls due, either daily, weekly or monthly.

Where the Group and Association use managing agents to run supported housing but overall control and risk of financial loss is retained by the Group or Association, the income from the supported housing is included in turnover. Where management charges are receivable from other Group entities by the Association, the income is recognised in turnover.

Value Added Tax (VAT)

The majority of the Group’s and Association’s turnover is exempt from VAT. However, certain activities are subject to VAT and give rise to a small amount of VAT recovery. Where appropriate, costs are stated including irrecoverable VAT.

Corporation Tax

A significant proportion of the Group’s activities occurs in Group entities recognised by Her Majesty’s Revenue and Customs as exempt charities for tax purposes and is therefore not liable to Corporation Tax on surpluses.

Goodwill arising on business combinations

Goodwill is calculated as the difference between the fair value of consideration and the fair value of net assets acquired. Positive goodwill is amortised evenly over the Directors’ estimate of its useful economic life. The Directors consider whether an impairment has taken place at each Balance Sheet date by reference to the income streams being generated. Impairment losses are recognised in the Income and Expenditure Account.

In accordance with the SORP (Revised 2010), acquisitions of social housing businesses that are in substance the gift of one business to another, are treated as non-exchange transactions. The fair value of the gift of the recognised assets and liabilities is treated as a gain or loss in the Income and Expenditure Account. See note 31.

Amounts previously treated as negative goodwill, arising from previous business combinations which meet the relevant criteria of a gift, have been credited to the opening reserves. See note 24.

Transfers of engagement

Where the assets and liabilities of a Group entity are transferred into another Group entity via a transfer of engagement, the transfers are treated as an acquisition in the receiving entity with assets and liabilities being fair valued using external data available and any gains on business combinations presented in the receiver. There is no consideration paid. Any adjustments which would otherwise adjust the overall Group fair value of the same assets or the associated gains on business combinations are removed through a consolidation adjustment so as not to impact the Group position which remains unchanged as a result of the transfer.

Tangible fixed assets and depreciation

Properties:

Housing properties comprise properties for rent (including care homes), shared ownership and student accommodation. Housing properties are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of such properties includes the following:

1. Cost of acquiring land and buildings;

2. Construction costs including internal equipment and fitting;

3. Directly attributable development administration costs;

4. Cost of capital employed during the development period;

5. Expenditure incurred in respect of improvements and extensions to existing properties; and

6. Construction costs incurred but not yet certified at the Balance Sheet date.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised.

Expenditure on housing properties which is either capable of generating increased future rents, extends their useful life, or significantly reduces future maintenance costs, is capitalised.

All other repairs and maintenance are charged to the Income and Expenditure Account during the financial year in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Structure 40 – 125 years

Door and door entry systems 10 – 40 years

Bathrooms 15 – 40 years

External works 15 – 20 years

Heating system 15 – 40 years

Kitchens 30 years

Lifts 10 years

Green technologies 25 years

Roof coverings 50 years

Windows 40 years

Electrical wiring 30 years

In accordance with the SORP, a review of the indicators of impairment is performed annually. When an indicator is identified, an impairment review is performed at an income generating unit level using an assessment of future discounted cash flows. Provisions are made to write down the carrying amount of assets where it is considered that properties have suffered diminution in value.

The acquisition and disposal of properties is accounted for on the date when completion takes place.

Notes to the Financial Statements

26 27

No

tes to th

e Fin

ancial S

tatemen

ts

1. Principal accounting policies (continued)Other operating assets

Other operating assets are stated at cost less accumulated depreciation, which is charged on a straight line basis to write off assets over their expected economic useful lives as follows:

Freehold land and buildings 10 – 40 years

Leasehold land and buildings Over the period of the lease

Improvements to freehold properties

15 years

Furniture and equipment 4 – 10 years

Motor vehicles 4 – 5 years

Capitalisation of interest and development administration costs

Interest on the Group’s and Association’s borrowings to finance developments is capitalised in fixed asset properties under construction to the extent it accrues in respect of the period of development. The interest is either on borrowings specifically financing a scheme (after deduction of interest on Social Housing Grant (‘SHG’) received in advance) or the weighted average borrowing rate across net borrowings deemed to be financing a scheme. Where a scheme has SHG in excess of costs, interest receivable is accrued against the balance.

The rate at which interest is capitalised is either the interest rate accruing on the specific borrowing or weighted average borrowing rate across net borrowing deemed to be financing a scheme.

Directly attributable development administration costs capitalised are the labour costs of the Group’s and Association’s own employees arising directly from the construction or acquisition of properties, and the incremental costs that would have been avoided only if the properties had not been constructed or acquired.

Agreements to acquire and improve existing properties

Where the Group and Association has entered into agreements to purchase property from a third party and subsequently enters into a sub-contracting agreement to carry out improvement works to the properties, the related assets and liabilities are shown at gross values unless the right of net settlement exists.

Sales of housing properties

Where properties built for sale are disposed of during the year, the disposal proceeds are included in turnover, and the attributable costs included in cost of sales. The surplus or deficit on disposal of housing properties held as fixed assets, including second or subsequent tranches of shared ownership properties, is accounted for in the Income and Expenditure Account. Where any SHG to be recycled or repaid is less than the SHG relating to the disposal, the difference is treated as abated SHG and included as a component of the surplus or deficit on disposal.

Shared ownership properties and assets held for sale

Under shared ownership arrangements the occupier has the right to purchase proportions at the current valuation up to 100%. Proceeds of sale of first tranches of equity are recognised in turnover with the attributable costs included in cost of sales. Subsequent tranches sold (‘staircasing’) are accounted for as disposals of housing properties, as noted above. First tranches awaiting sale are recognised within current assets on the Balance Sheet.

SHG and other public grant

Where developments have been financed wholly or partly by SHG and/or other public grant, the amount of grant received is offset against the cost of developments on the face of the Balance Sheet. In instances where grant for the development programme exceeds development costs, an amount equal to the excess is held in creditors. Where grants are receivable for the development programme in arrears the amounts are accrued within debtors. Where grants are repayable and the associated asset is sold, the grant is held within the Recycled Capital Grant Fund or Disposal Proceeds Fund within creditors until it is recycled or repaid to the issuer.

Where acquired entities have grant, the gross book value has been uplifted by the grant amount to show both the cost and grant element within the Group Balance Sheet. Refer to note 9 for further details.

Capital grants

Where grants have been received to fund the purchase of fixed assets the grant is recognised within creditors. As the assets are depreciated the grant is released to the Income and Expenditure Account to match the cost of construction.

Recycled capital grant fund (‘RCGF’) and disposal proceeds fund (‘DPF’)

In certain circumstances the Group and Association are permitted to retain the SHG relating to properties sold and to apply this to further property development within a certain time frame. If this time frame is exceeded the grant may be repayable. In these circumstances it is included within the recycled capital grant fund or disposal proceeds fund within creditors.

Finance leases

Housing properties held under finance leases are recorded in the Balance Sheet with the lease at their equivalent carrying value. The corresponding liability is recorded as a creditor and the interest element of the finance charge is charged to the Income and Expenditure Account over the primary lease period on a constant rate basis.

Amounts receivable under finance leases are recorded in the Balance Sheet at the present value of the future contractual cash flows from the lessee.

Annual amounts received in respect of interest on finance leases are recognised in the Income and Expenditure Account.

Operating leases

Annual rentals in respect of operating leases are charged to the Income and Expenditure Account.

Financial instruments

The Group categorises its financial assets and liabilities in accordance with Financial Reporting Standard 26 ‘Financial Instruments: recognition & measurement’.

Financial assets

Financial assets are defined as cash or any asset that is a contractual right to receive cash or another financial asset from another entity, or a contractual right to exchange financial instruments with another entity under conditions that are potentially favourable, or an equity instrument of another entity. There are three categories of financial assets held by the Group:

•Financial assets at fair value through income or expenditure;

•Loans and receivables; and

•Available-for-sale financial assets.

Financial assets at fair value through income or expenditure are all derivatives other than those that are designated as effective hedging instruments and assets acquired principally for the purpose of

selling in the near term. These are initially measured at fair value, not including transaction costs. At each Balance Sheet date they are re-measured at fair value. Any change in value is recognised in the Income and Expenditure Account unless hedge accounting is effective. Derivatives are measured at fair value and where they are part of an effective hedging relationship changes in the fair value are taken to the cash flow hedge reserve. If the hedging relationship is deemed not to be effective, changes in fair value would be recognised in the Income and Expenditure Account.

The cash flow hedge reserve relating to terminated hedge relationships is reclassified to the Income and Expenditure Account, specifically interest payable, in the same period and in the same proportion as the hedged instrument impacts the Income and Expenditure Account.

Loans and receivables are assets with fixed or determinable payments that are not quoted on an active market, other than those that are categorised as financial assets at fair value through the Income and Expenditure Account or available-for-sale assets. These are initially recognised at fair value plus transaction costs. At each Balance Sheet date they are re-measured at fair value. Examples of loans and receivables include tenant arrears, unlisted investments and sundry debtors.

Available-for-sale financial assets are assets that are available for sale. They are initially recognised at fair value plus transaction costs, which is effectively historical cost. At each Balance Sheet date they are re-measured at fair value and movements are recorded in equity reserves and in the Income and Expenditure Account when the reserves are fully utilised. The Group considers listed investments to be available-for-sale assets.

Notes to the Financial Statements (continued)

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1. Principal accounting policies (continued)Financial liabilities

Financial liabilities are defined as any liability that is a contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial instruments with another entity under conditions that are potentially unfavourable. There are two categories of financial liability:

•Financial liabilities at fair value through income or expenditure; and

•Other financial liabilities.

Financial liabilities at fair value through income or expenditure are derivative liabilities. These are initially measured at fair value, not including transaction costs. At each Balance Sheet date they are re-measured at fair value. Any change in value is recognised in the Income and Expenditure Account unless hedge accounting is effective in which case movements are treated as described in the financial assets section on the previous page.

Other financial liabilities are all financial liabilities that have value to the supplying party and do not fall into the previous category, for instance debt finance. They are valued at fair value at inception and then amortised cost subsequently.

Cash flow hedge reserve

The Group utilises derivative financial instruments where appropriate in order to manage financial risk. In accordance with applicable accounting standards hedge accounting is applied to these instruments in order to reduce volatility in the primary statements. The cash flow hedge reserve contains fair value movements of debt and associated derivatives that are in cash flow hedge relationships, as well as amounts credited in relation to terminated hedge relationships.

Fixed asset investments

Where investments in listed or unlisted securities are held as a condition of financing arrangements, with the result that the Group’s ability to utilise these funds is restricted in the long term, the investments are treated as fixed assets. Investments are recorded at cost and revalued annually. Subsequent upward revaluations are reported in the Statement of Total Recognised Surpluses and Deficits, and credited to the revaluation reserve. Diminutions in value are recognised in the Statement of Total Recognised Surpluses and Deficits until the revaluation reserve in respect of that asset no longer exists. Further diminutions in value or impairments of fixed asset investments are recognised in the Income and Expenditure Account.

Investment in subsidiaries

Investments in subsidiaries are recorded at cost less any impairment for permanent diminutions in value.

Impairment of current and unlisted investments

Current and unlisted investments are stated at the lower of cost and net recoverable value. The Group considers whether an impairment exists of all such balances at each Balance Sheet date and provides if appropriate.

Provisions against tenant arrears

The Group provides fully for arrears due from former tenants. Specific categories of current tenant debt and specific tenant balances are provided for where the likelihood of settlement in full or in part is unlikely.

Provision against sundry debtors

The Group provides for specific categories of sundry debtor balances and specific sundry debtor balances where the likelihood of settlement in full or in part is unlikely.

Financing costs

Costs which are incurred directly in connection with the raising of private finance are deducted from the liability and amortised over the term of the loan on a consistent periodic rate of charge. Premiums or discounts on financial instruments are amortised using the effective interest rate basis or a straight line basis where it can be demonstrated that there is no material difference between the two methods.

Leasehold service charge sinking funds

The Group and Association are required to set aside sums for future maintenance of certain properties subject to leasehold arrangements. These sums are held in a separate bank account to which interest is added and tax deducted. Amounts accumulated in the fund are included within prepayments and other debtors and within creditors falling due within one year.

Unutilised contributions to sinking funds and over recovery of service costs repayable to tenants/leaseholders are shown in liabilities (including any interest). Where there has been an under recovery of variable service charges, the balance is included within debtors to the extent it is recoverable.

Retirement benefits

The Group’s and Association’s pension arrangements comprise various defined benefit and defined contribution schemes. Where the underlying assets and liabilities of the defined benefit schemes can be separately identified the Group recognises in full the schemes’ surpluses or deficits on the Balance Sheet. Actuarial gains and losses for these schemes are included in the Statement of Total Recognised Surpluses and Deficits. Current and past service costs, curtailments and settlements are recognised within operating surplus. Expected returns on scheme assets and interest on obligations are recognised as other finance income or expenses.

Where it is not possible to separately identify the share of the underlying assets and liabilities of a defined benefit scheme the amount charged to the Income and Expenditure Account represents the contributions payable in the year. This applies in particular to the Social Housing Pension Scheme (SHPS) and Scottish Housing Associations Pension Scheme (SHAPS). The Group has determined that it is not possible to identify the share of underlying assets and liabilities for the following main reasons:

•Scheme assets are not allocated to individual employers;

•Contributions are the same for all employers irrespective of underlying assets; and

•Residual (‘orphan’) members whose employer has withdrawn from the scheme cannot be allocated to specific remaining employers.

All of the above reduce the accuracy with which an individual employer’s liability could be calculated.

For defined contribution arrangements the cost charged to the Income and Expenditure Account represents the Group’s contributions to such schemes in the financial year in which they fall due.

Restricted reserves

In certain circumstances, reserves are restricted in application and have been shown separately on the face of the Balance Sheet and in the reserves note.

Notes to the Financial Statements (continued)

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2. Turnover, cost of sales, operating costs and operating surplus – Group

2012 2012 2012 2012 2011

Turnover Cost of sales

Operating costs

Operating surplus

Operating surplus

Restated

£m £m £m £m £m

Social housing lettings

Housing accommodation 204.6 - (118.8) 85.8 77.7

Sheltered and supported housing 58.1 - (49.8) 8.3 8.2

Key worker accommodation 3.0 - (1.9) 1.1 1.1

Shared ownership 4.0 - (2.4) 1.6 1.3

269.7 - (172.9) 96.8 88.3

Other social housing activities

Development administration - - (3.7) (3.7) (3.0)

Home ownership and managed properties 7.0 - (6.1) 0.9 0.7

Supporting people contract income 19.3 - (19.3) - -

Shared ownership first tranche sales 3.8 (3.5) - 0.3 0.2

Other 4.7 - (5.4) (0.7) (1.3)

34.8 (3.5) (34.5) (3.2) (3.4)

Non social housing activities

Student accommodation 37.6 - (32.2) 5.4 4.6

Care homes 85.6 - (80.6) 5.0 4.3

Domiciliary care 3.8 - (3.5) 0.3 0.4

127.0 - (116.3) 10.7 9.3

Totals 431.5 (3.5) (323.7) 104.3 94.2

Share of operating surplus in joint venture 0.1 0.1

Group operating surplus 104.4 94.3

Gain on business combinations - 39.0

Surplus/(loss) on sale of fixed assets 3.0 (8.7)

Interest receivable and similar income 1.6 2.1

Interest payable and similar charges (85.3) (79.1)

Financing cost - (0.7)

Surplus on ordinary activities before taxation 23.7 46.9

Taxation on surplus on ordinary activities (0.1) -

Surplus for the year after taxation 23.6 46.9

Development administration expenditure and other directly attributable costs capitalised for the Group during the year amounted to £4.8 million (2011: £3.4 million).

2. Turnover, cost of sales, operating costs and operating surplus – Association

2012 2012 2012 2012 2011

Turnover Cost of sales

Operating costs

Operating surplus

Operating surplus

Restated

£m £m £m £m £m

Social housing lettings

Housing accommodation 173.4 - (106.6) 66.8 46.2

Sheltered and supported housing 49.4 - (43.1) 6.3 2.0

Key worker accommodation 3.0 - (1.9) 1.1 1.3

Shared ownership 3.6 - (2.0) 1.6 1.4

229.4 - (153.6) 75.8 50.9

Other social housing activities

Development administration - - (3.5) (3.5) (3.0)

Home ownership and managed properties 4.9 - (4.3) 0.6 0.8

Supporting people contract income 19.2 - (19.2) - -

Shared ownership first tranche sales 3.4 (3.1) - 0.3 0.3

Other 5.8 - (6.9) (1.1) (1.1)

33.3 (3.1) (33.9) (3.7) (3.0)

Non social housing activities

Student accommodation 25.4 - (21.3) 4.1 1.1

Care homes 4.4 - (3.5) 0.9 0.8

Management recharges 12.3 - (12.3) - -

42.1 - (37.1) 5.0 1.9

Totals 304.8 (3.1) (224.6) 77.1 49.8

Other income – Gift Aid 4.8 4.8

Operating surplus 81.9 54.6

Gain on business combinations 220.4 143.8

Surplus on sale of fixed assets 2.8 0.3

Interest receivable and similar income 2.6 5.2

Interest payable and similar charges (70.4) (49.9)

Financing cost (0.1) (0.7)

Surplus on ordinary activities before taxation 237.2 153.3

Taxation on surplus on ordinary activities (0.1) -

Surplus for the year after taxation 237.1 153.3

Development administration expenditure and other directly attributable costs capitalised for the Association during the year amounted to £2.5 million (2011: £2.8 million).

Notes to the Financial Statements (continued)

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3. Income and expenditure from social housing lettings – Group

Rented housing

Sheltered and supported housing

Key worker accommodation

Shared ownership

2012 Total

2011 Total

£m

£m

£m

£m

£m

Restated £m

Income from lettings

Rents 194.2 41.2 3.1 3.4 241.9 227.5

Service charges 11.6 15.7 - 0.6 27.9 26.2

Charges for support services 0.1 2.8 - - 2.9 3.7

Gross rental income 205.9 59.7 3.1 4.0 272.7 257.4

Voids (1.3) (1.6) (0.1) - (3.0) (3.2)

Turnover from social housing lettings

204.6 58.1 3.0 4.0 269.7 254.2

Expenditure on lettings

Management (23.4) (15.7) (1.1) (1.5) (41.7) (40.9)

Services (12.7) (18.2) (0.4) (0.5) (31.8) (31.3)

Routine maintenance (39.2) (5.0) (0.1) - (44.3) (44.1)

Planned maintenance (18.0) (3.2) - - (21.2) (17.1)

Rent losses from bad debts (2.5) (0.4) - - (2.9) (2.6)

Property lease charges (1.3) (0.4) - - (1.7) (1.4)

Depreciation of properties (21.7) (6.9) (0.3) (0.4) (29.3) (28.5)

Operating costs from social housing lettings

(118.8) (49.8) (1.9) (2.4) (172.9) (165.9)

Operating surplus from social housing lettings

85.8 8.3 1.1 1.6 96.8 88.3

The average weekly general needs rent (including service charges eligible for housing benefit) charged during the year was £85.67 (2011: £82.89). The average weekly service charge eligible for housing benefit was £6.72 (2011: £6.27).

3. Income and expenditure from social housing lettings – Association

Rented housing

Sheltered andsupported housing

Key worker accommodation

Shared ownership

2012 Total

2011 Total

£m

£m

£m

£m

£m

Restated £m

Income from lettings

Rents 163.9 35.2 3.1 3.1 205.3 135.7

Service charges 10.5 13.6 - 0.5 24.6 14.3

Charges for support services 0.1 2.1 - - 2.2 1.8

Gross rental income 174.5 50.9 3.1 3.6 232.1 151.8

Voids (1.1) (1.5) (0.1) - (2.7) (1.4)

Turnover from social housing lettings

173.4 49.4 3.0 3.6 229.4 150.4

Expenditure on lettings

Management (21.8) (13.3) (1.1) (1.2) (37.4) (29.2)

Services (11.1) (15.5) (0.4) (0.4) (27.4) (16.8)

Routine maintenance (35.1) (4.8) (0.1) - (40.0) (23.9)

Planned maintenance (17.1) (3.1) - - (20.2) (9.2)

Rent losses from bad debts (2.2) (0.4) - - (2.6) (1.7)

Property lease charges (1.3) (0.4) - - (1.7) (1.4)

Depreciation of properties (18.0) (5.6) (0.3) (0.4) (24.3) (17.3)

Operating costs from social housing lettings

(106.6) (43.1) (1.9) (2.0) (153.6) (99.5)

Operating surplus from social housing lettings

66.8 6.3 1.1 1.6 75.8 50.9

The average weekly assured tenancy rent (including service charges eligible for housing benefit) charged during the year was £85.86 (2011: £83.09). The average weekly service charge eligible for housing benefit was £6.75 (2011: £6.27).

Notes to the Financial Statements (continued)

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Group Association

2012 2011 2012 2011

Restated Restated

The operating surplus is arrived at after charging/(crediting): £m £m £m £m

Rented and sheltered bad debts (note 17) 2.6 1.5 2.3 1.5

Other bad debts (note 17) 1.2 0.9 0.5 0.5

Depreciation of properties – residential freehold (note 28a) 31.6 29.8 26.6 17.0

Depreciation of properties – residential leasehold (note 28a) 2.6 1.8 2.5 1.5

Depreciation of operating fixed assets (note 28a) 10.4 10.1 10.0 8.7

Operating assets impairment - 0.4 - -

Amortisation of positive goodwill (note 8) 0.1 0.1 0.1 0.1

Gain on business combinations - (39.0) - -

Gain on transfers of engagement (note 31) - - (220.3) (143.8)

Gain on transfer from subsidiary - - (0.1) -

Operating lease rentals – land and buildings (note 18) 1.1 0.9 1.0 0.7

Auditors’ remuneration for audit and non-audit services comprise of:

Group Association

2012 2011 2012 2011

£m £m £m £m

Audit services 0.4 0.4 0.3 0.2

Taxation services 0.1 0.1 0.1 0.1

Advisory services 0.2 0.2 0.2 0.2

Other assurance services 0.1 0.2 0.1 0.1

Total non-audit services 0.4 0.5 0.4 0.4

Other assurance services in 2012 relate primarily to advice on the chart of accounts.

4a) Disposal of tangible fixed assetsGroup Right to

buy/ acquire

Subsequent staircasing

Disposal of surplus properties

Other fixed assets

Fixed asset investments

Total 2012

Total 2011

£m

£m

£m

£m

£m

£m

Restated £m

Proceeds 2.7 1.1 3.0 3.2 2.4 12.4 8.2

Other items - - - - - - (0.1)

Disposals at cost (2.0) (0.4) (2.7) (4.2) (2.3) (11.6) (8.8)

Transfers to RCGF/DPF (0.2) (0.2) (0.3) - - (0.7) (0.4)

Depreciation on disposals - - 0.1 2.8 - 2.9 2.8

Provision for loss on sale - - - - - - (10.4)

0.5 0.5 0.1 1.8 0.1 3.0 (8.7)

Association Right to buy/ acquire

Subsequent staircasing

Disposal of surplus properties

Other fixed assets

Fixed asset investments

Total 2012

Total 2011

£m £m £m £m £m £m £m

Proceeds 1.7 1.1 2.9 3.1 1.7 10.5 3.4

Other items - - - - - - (0.3)

Disposals at cost (1.3) (0.3) (2.5) (3.8) (1.7) (9.6) (4.2)

Transfers to RCGF/DPF (0.1) (0.2) (0.3) - - (0.6) (0.4)

Depreciation on disposals - - 0.1 2.4 - 2.5 1.8

0.3 0.6 0.2 1.7 - 2.8 0.3

The provision for loss on sale relates to the agreement to swap social housing with another registered provider. See note 24b for further details.

5. Directors’ emoluments and employee information The Board

Emoluments of the Board Directors are disclosed below:

2012 2011

£’000 £’000

Salary including benefits in kind – Executive Board Directors 510 503

Pension contributions – Executive Board Directors 31 54

541 557

Salary including benefits in kind – Non Executive Board Directors 79 -

620 557

The emoluments (excluding pension contributions and analogous payments) of the Board Directors were:

Salary Other benefits

£’000 £’000

David Bennett Group Chief Executive 269 20

Craig Moule Group Director – Finance and Resources 205 16

Nick Baldwin Group Chair 20 -

Jonathan Lander Vice Chair of Group Board 12 -

Rosemary Crawley Non Executive Board Director 9 -

John Doughty Non Executive Board Director 8 -

Kenneth Gibb Non Executive Board Director (elected September 2011) 4 -

Liz Meek Non Executive Board Director (elected September 2011) 4 -

Robert McComb Non Executive Board Director (elected September 2011) 4 -

Victoria Elvidge Non Executive Board Director (resigned September 2011) 6 -

Nick Buckland Non Executive Board Director (resigned September 2011) 4 -

Valerie Leake Non Executive Board Director (resigned September 2011) 4 -

Barry Stanford Non Executive Board Director (resigned September 2011) 4 -

The emoluments of the highest paid Executive Board Director (excluding pension contributions and analogous payments) were £289,000 (2011: £284,000).

Recharging of Executive Board Directors’ emoluments

The Group Chief Executive (GCE) and Group Director – Finance and Resources (GD-F&R), are Directors of a number of subsidiary entities. Part of their emoluments reflect the work and time spent on affairs of subsidiaries and are recharged by way of Directors and Company Secretarial fees to those companies as follows:

GCE GD-F&R

£’000 £’000

Total emoluments (excluding pension contributions and analogous payments) 289 221

Less recharges to:

Sanctuary Care Limited (31) (31)

Sanctuary Management Services Limited (18) (18)

Heart of England Housing and Care Limited (6) (6)

Net cost to social housing activities 234 166

Expenses

In addition to the above emoluments, the Board were reimbursed for expenses necessarily incurred in the conduct of their duties amounting to £7,479 (2011: £9,744).

Notes to the Financial Statements (continued)4. Operating surplus

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5. Directors’ emoluments and employee information (continued)Employee information

Group Association

2012 2011 2012 2011

£m £m £m £m

Employee (including Directors’) costs charged during the year amounted to:

Wages and salaries 128.9 119.3 72.3 53.0

Social security costs 9.8 8.5 6.2 4.4

Pension costs 5.7 6.0 4.3 3.3

144.4 133.8 82.8 60.7

Employee costs above exclude amounts capitalised as part of development activities.

Group Association

2012 2011 2012 2011

Number Number Number Number

The average monthly number of persons (including Directors) employed during the year expressed in full-time equivalents was:

Site based staff 3,934 3,637 1,355 579

Office based staff 1,797 1,799 1,550 1,597

5,731 5,436 2,905 2,176

2011 comparatives for Group have been reclassified.

Loans totalling £3,601 (2011: £20,288) have been made to employees, being for motor cars or for travel season tickets. All loans are interest bearing at a commercial rate with terms varying between one and five years.

6. Interest receivable and payablea) Interest receivable and similar income

Group Association

2012 2011 2012 2011

£m £m £m £m

Interest receivable from:

Short-term cash deposits 0.2 0.6 - -

Listed investments 0.8 0.7 0.8 0.7

Other interest 0.6 0.8 1.8 4.5

1.6 2.1 2.6 5.2

b) Interest payable and similar charges

Group Association

2012 2011 2012 2011

£m £m £m £m

Bank loans, overdrafts and other loans:

– Repayable within five years by instalments 2.5 3.9 2.5 3.9

– Repayable wholly or partly in more than five years 87.5 81.6 72.2 52.0

Interest in respect of assets held under finance leases

0.1 0.2 0.1 0.1

Less: amounts transferred to housing properties in the course of construction

(2.6) (2.5) (2.2) (2.0)

87.5 83.2 72.6 54.0

Net amounts credited in respect of derivative financial instruments

(2.2) (4.1) (2.2) (4.1)

85.3 79.1 70.4 49.9

Included within bank loans, overdrafts and other loans repayable wholly or partly in more than five years is £575,000 (2011: £450,000) in respect of premium amortisation.

Notes to the Financial Statements (continued)

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7. Taxation on surplus – Ordinary activitiesThe charge in the current year Income and Expenditure Account relates to the settlement of a Corporation Tax liability of Charter Community Housing Limited relating in part back to 2006.

The Group has incurred a taxation charge of £68,000 in relation to the joint venture ASK (Holdings) Limited in the year (2011: £54,000). Refer to note 32 for further details.

8. Intangible fixed assetsPurchased goodwill

Group Association

2012 2012

Cost £m £m

At 1 April 2011 and 31 March 2012 2.2 1.2

Accumulated amortisation

At 1 April 2011 1.5 0.6

Charge for the year 0.1 0.1

At 31 March 2012 1.6 0.7

Net book amount at 31 March 2012 0.6 0.5

Net book amount at 31 March 2011 0.7 0.6

9. Fixed assets – Properties (Group)

Completed rented properties

Completed shared ownership properties

Completed student accommodation

Under construction

Total

£m £m £m £m £m

Cost

At 1 April 2011 3,065.5 67.8 141.4 251.1 3,525.8

Additions during year 65.2 1.2 1.3 131.8 199.5

Transfers at completion 244.8 0.2 - (245.0) -

Transfers to assets held for sale

(1.5) - - (7.4) (8.9)

Disposals (10.8) (0.9) (1.0) (0.9) (13.6)

At 31 March 2012 3,363.2 68.3 141.7 129.6 3,702.8

Accumulated depreciation

At 1 April 2011 previously stated

157.8 2.2 28.0 - 188.0

Provision for loss on sale 10.2 - - - 10.2

At 1 April 2011 as restated 168.0 2.2 28.0 - 198.2

Charge for year 26.7 - 0.5 - 27.2

Disposals (4.6) (0.1) - - (4.7)

At 31 March 2012 190.1 2.1 28.5 - 220.7

Depreciated cost 3,173.1 66.2 113.2 129.6 3,482.1

Social Housing Grant

At 1 April 2011 1,045.3 26.9 1.4 34.8 1,108.4

Receivable during year 1.5 0.5 - 23.7 25.7

Transfers at completion 18.9 0.5 - (19.4) -

Disposals (1.4) (0.5) - (0.2) (2.1)

At 31 March 2012 1,064.3 27.4 1.4 38.9 1,132.0

Other capital grants

At 1 April 2011 211.6 3.1 0.3 60.3 275.3

Receivable during the year 2.5 0.2 - 25.7 28.4

Transfers at completion 51.3 0.7 - (52.0) -

Disposals (3.6) (0.2) - - (3.8)

At 31 March 2012 261.8 3.8 0.3 34.0 299.9

Net Book Amount

At 31 March 2012 1,847.0 35.0 111.5 56.7 2,050.2

At 31 March 2011 1,640.6 35.6 111.7 156.0 1,943.9

Included within housing properties are assets held under finance leases with a cost of £1.6 million (2011: £1.6 million). Of the total book value of properties under construction, £4.8 million is shared ownership (2011: £5.8 million) and £51.9 million is general needs (2011: £150.2 million). Of the total net book value of housing stock, £1,985.7 million is freehold (2011: £1,893.0 million), £64.1 million is long leasehold (2011: £50.5 million) and £0.4 million is short leasehold (2011: £0.4 million).

During the year £50.7 million (2011: £62.8 million) was capitalised in respect of works to existing properties. A total of £48.2 million (2011: £43.2 million) was recognised in the Income and Expenditure Account in respect of maintenance costs incurred on existing properties.

Of the total net book value of housing stock £28.6 million is expected to be transferred out of the Group in a stock swap in the next three months. A provision for loss on sale in relation to this transaction has been made of £10.2 million.

Notes to the Financial Statements (continued)

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9. Fixed assets – Properties (continued)Annual impairment review

The Group tests asset carrying values annually for impairment, and more frequently should there be indicators that assets might be impaired. All income generating units (IGUs) have been tested for impairment for the year ended 31 March 2012.

The Group considers regions to be the IGUs for social housing business streams and for student accommodation. Each care home is considered to be an IGU. However, where there are impairment indicators at a scheme/property level, an assessment is made of the carrying value of such schemes/properties.

The recoverable amounts of the IGU are determined from net present value (NPV) calculations using a range of 30 to 70 years based on the relevant business model. The key assumptions are the discount rate, the inflation rate (2.5%) and the static growth rate. The entity’s weighted average cost of capital (WACC) is applied to each entity as appropriate (note 17).

On the basis of the above tests no impairment triggers were identified as at 31 March 2012.

9. Fixed assets – Properties (Association)

Completed rented properties

Completed shared ownership properties

Completed student accommodation

Under construction

Total

£m £m £m £m £m

Cost

At 1 April 2011 2,184.0 52.4 10.3 174.1 2,420.8

Additions during year 59.9 1.1 1.2 100.1 162.3

Transfers of engagement 596.8 14.3 117.3 2.0 730.4

Transfers at completion 171.8 1.7 - (173.5) -

Transfer to assets held for sale

- - - (3.6) (3.6)

Transfer from subsidiary 1.7 - - - 1.7

Disposals (9.9) (0.9) (1.0) - (11.8)

At 31 March 2012 3,004.3 68.6 127.8 99.1 3,299.8

Accumulated depreciation

At 1 April 2011 127.3 1.8 4.0 - 133.1

Charge for year 22.0 - 0.5 - 22.5

Disposals (4.3) (0.1) - - (4.4)

At 31 March 2012 145.0 1.7 4.5 - 151.2

Depreciated cost 2,859.3 66.9 123.3 99.1 3,148.6

Social Housing Grant

At 1 April 2011 789.8 21.8 - 34.5 846.1

Receivable during year 1.6 0.4 - 23.4 25.4

Transfers of engagement 231.6 5.0 1.4 0.4 238.4

Transfers at completion 18.9 0.5 - (19.4) -

Transfer from subsidiary 1.6 - - - 1.6

Disposals (1.6) (0.4) - - (2.0)

At 31 March 2012 1,041.9 27.3 1.4 38.9 1,109.5

Other capital grants

At 1 April 2011 127.9 2.2 0.3 16.0 146.4

Receivable during year 0.5 - - 4.3 4.8

Transfers of engagement 14.1 1.0 - 4.0 19.1

Transfers at completion 12.5 0.7 - (13.2) -

Disposals (3.6) (0.1) - - (3.7)

At 31 March 2012 151.4 3.8 0.3 11.1 166.6

Net Book Amount

At 31 March 2012 1,666.0 35.8 121.6 49.1 1,872.5

At 31 March 2011 1,139.0 26.6 6.0 123.6 1,295.2

Included within housing properties are assets held under finance leases at a cost of £1.6 million (2011: £1.6 million). Of the total book value of properties under construction, £4.8 million is shared ownership (2011: £5.8 million) and £44.3 million is general needs (2011: £117.8 million). Of the total net book value of housing stock, £1,816.5 million is freehold (2011: £1,246.2 million), £55.6 million is long leasehold (2011: £48.6 million) and £0.4 million is short leasehold (2011: £0.4 million).

During the year £46.2 million (2011: £32.4 million) was capitalised in respect of works to existing properties. A total of £38.7 million (2011: £23.8 million) was recognised in the Income and Expenditure Account in respect of maintenance costs incurred on existing properties.

Transfer from subsidiary includes the transfer of Asra House from Asra Midlands Housing Association Limited.

Notes to the Financial Statements (continued)

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10. Fixed assets – other operating assets (Group)

Land and buildings

Freehold Leasehold Furniture and equipment

Vehicles Total

£m £m £m £m £m

Cost

At 1 April 2011 33.5 1.2 60.1 6.3 101.1

Additions 3.9 - 11.5 4.1 19.5

Disposals (0.9) (0.1) (1.8) (1.4) (4.2)

At 31 March 2012 36.5 1.1 69.8 9.0 116.4

Accumulated depreciation

At 1 April 2011 previously stated 6.2 0.5 37.4 2.3 46.4

Provision for loss on sale - - 0.2 - 0.2

At 1 April 2011 as restated 6.2 0.5 37.6 2.3 46.6

Charge for year 1.2 0.1 7.5 1.6 10.4

Disposals (0.5) (0.1) (1.2) (1.0) (2.8)

At 31 March 2012 6.9 0.5 43.9 2.9 54.2

Net book amount

At 31 March 2012 29.6 0.6 25.9 6.1 62.2

At 31 March 2011 27.3 0.7 22.5 4.0 54.5

10. Fixed assets – other operating assets (Association)

Land and buildings

Freehold Leasehold Furniture and equipment

Vehicles Total

£m £m £m £m £m

Cost

At 1 April 2011 30.5 0.7 55.2 5.6 92.0

Additions 3.5 - 10.9 3.9 18.3

Transfers of engagement 1.6 0.3 1.0 - 2.9

Disposals (0.9) (0.1) (1.6) (1.2) (3.8)

At 31 March 2012 34.7 0.9 65.5 8.3 109.4

Accumulated depreciation

At 1 April 2011 4.9 0.3 34.2 2.1 41.5

Charge for year 1.2 - 7.3 1.5 10.0

Disposals (0.5) (0.1) (0.9) (0.9) (2.4)

At 31 March 2012 5.6 0.2 40.6 2.7 49.1

Net book amount

At 31 March 2012 29.1 0.7 24.9 5.6 60.3

At 31 March 2011 25.6 0.4 21.0 3.5 50.5

11. Fixed asset investments

Group Association

2012 2011 2012 2011

£m £m £m £m

At cost or valuation:

Listed investments 19.5 18.8 19.4 12.0

Unlisted investments 20.0 18.1 20.0 7.3

Homebuy

– Investment 5.9 6.1 4.4 2.4

– Grant (5.9) (6.1) (4.4) (2.4)

Total fixed asset investments 39.5 36.9 39.4 19.3

The Directors believe that the carrying value of investments is supported by their underlying net assets. The historic cost of the Group’s and Association’s listed investments are £15.8 million and £15.8 million respectively (2011: £16.5 million and £10.9 million respectively). These investments comprise gilt edged stock and other registered provider debenture stocks, which are held in accordance with the terms of certain Group loans. The security trustee has a charge over these investments.

The unlisted investments represent cash reserves held as security against borrowings either as required under the terms of the loan agreements or as substitutes for charges on stock. These reserves cannot be utilised for any other purpose than servicing the associated debt.

Reconciliation of movement in listed investments

Group Association

£m £m

As at 1 April 2011 18.8 12.0

Additions 1.7 7.3

Disposal (2.3) (1.7)

Revaluations 1.3 1.8

As at 31 March 2012 19.5 19.4

12. Derivative financial instruments

Group and Association

2012 2011

£m £m

US Private Placements 1 - (0.1)

US Private Placements 2 (0.1) (0.5)

US Private Placements 3 20.4 14.5

20.3 13.9

The derivative financial instruments represent the fair value of the currency swaps in place to hedge the foreign currency risk arising from the fixed interest and principal payments. They relate to $80 million 7.15% senior notes due 2012 (US Private Placements 1 and 2), $20 million 5.42% senior notes issued in April 2007 and due in 2017 and $80 million 5.83% senior notes also issued in April 2007 and due in 2037 (US Private Placements 3).

Notes to the Financial Statements (continued)

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13. Debtors

Group Association

2012 2011 2012 2011

£m £m £m £m

Amounts falling due within one year:

Tenant rental debtors 10.6 13.0 9.4 9.9

Shared ownership debtors 0.4 0.9 0.4 0.6

Other rental debtors 3.8 2.1 3.6 1.3

Other tax and social security 0.4 1.4 0.4 1.4

Amounts due from subsidiary undertakings - - 14.2 22.6

Prepayments and other debtors 44.7 38.1 33.2 29.5

59.9 55.5 61.2 65.3

Amounts falling due after more than one year:

Amounts due under finance lease (note 20) 54.7 55.0 - -

Amounts due from subsidiary undertakings - - 18.7 45.0

Total debtors 114.6 110.5 79.9 110.3

Tenant rental debtors are stated net of a provision of £3.9 million for Group (2011: £5.8 million) and £3.7 million for Association (2011: £4.8 million). Further information on rental debtors is contained in note 17d.

The amounts due under finance leases after one year relate to an agreement between Glasgow Student Villages Limited (a subsidiary of the Group) and Glasgow University and are payable over the next 22 years.

14. Assets held for sale

Group Association

2012 2011 2012 2011

£m £m £m £m

Assets held for sale 3.5 5.1 3.5 4.1

Homestake properties

– Cost of properties 16.9 13.1 - -

– Grant received (15.4) (12.1) - -

5.0 6.1 3.5 4.1

Assets held for sale include properties held for outright sale and proportions of shared ownership properties allocated as first tranche sales.

Homestake are schemes run by Sanctuary Scotland Housing Association Limited which are funded by government grants. The cost of the properties are shown in assets held for sale net of grants received in accordance with the SORP.

15. Creditors: Amounts falling due within one year

Group Association

2012 2011 2012 2011

£m £m £m £m

Deferred finance, bank loans and overdrafts 24.9 26.9 20.7 23.2

Trade creditors 10.4 10.7 9.0 7.8

Amounts due to subsidiary undertakings - - 4.8 11.0

Other taxation and social security payable 2.9 3.8 1.5 1.3

Other creditors 18.6 19.2 12.7 2.0

Accruals 72.7 67.7 57.8 48.9

Future maintenance on home ownership schemes 13.2 12.2 13.1 10.4

Recycled capital grant fund 1.2 1.4 1.2 1.0

Disposals proceeds fund 0.1 0.1 0.1 0.1

144.0 142.0 120.9 105.7

Notes to the Financial Statements (continued)

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16. Creditors: Amounts falling due after more than one year

Group Association

2012 2011 2012 2011

£m £m £m £m

Senior secured notes and debenture stock 684.5 686.3 334.6 207.0

Bank loans and mortgages 766.3 719.6 440.7 326.2

Local authority loans 0.6 0.7 0.6 0.6

Net obligations under finance leases (note 19) 0.8 0.8 0.8 0.8

Amounts owed to Group companies - - 500.8 443.4

1,452.2 1,407.4 1,277.5 978.0

Recycled capital grant fund 0.8 3.3 0.8 3.0

Disposals proceeds fund 0.2 0.3 0.1 0.3

Other creditors 7.4 - - -

1,460.6 1,411.0 1,278.4 981.3

Based on the lender’s earliest repayment date, borrowings fall due as follows:

Group Finance leases

Local authority loans

Other borrowings

Total

£m £m £m £m

Due within one year - - 24.9 24.9

Due in more than one year but less than two years - - 9.2 9.2

Due in more than two years but less than five years - - 74.3 74.3

Due in more than five years 0.8 0.6 1,367.3 1,368.7

0.8 0.6 1,475.7 1,477.1

Association Finance leases

Local authority loans

Other borrowings

Total

£m £m £m £m

Due within one year - - 20.7 20.7

Due in more than one year but less than two years - - 9.2 9.2

Due in more than two years but less than five years - - 74.3 74.3

Due in more than five years 0.8 0.6 1,192.6 1,194.0

0.8 0.6 1,296.8 1,298.2

The Group provided security on loans with charges on property totalling £1,400.8 million (2011: £1,337.6 million) at the Balance Sheet date. It also provided security for the one year’s interest payments and final principal instalment in the form of debt service reserves for loans totalling £577.5 million (2011: £224.3 million). Borrowings are stated net of £11.6 million set up costs (2011: £9.1 million). Further details on interest rates are contained in note 17a.

The Association provided security on loans with charges on property totalling £1,224.0 million (2011: £942.9 million) at the Balance Sheet date. It also provided security for the one year’s interest payments and final principal instalment in the form of debt service reserves for loans totalling £349.3 million (2011: £117.1 million). Borrowings are stated net of £11.5 million set up costs (2011: £9.3 million).

Other than on debt finance, all other creditors are unsecured and do not bear interest under normal commercial terms.

All social housing and other grants are potentially repayable to the issuing body. The potential liability is recognised through the balances held as recycled capital grant fund and disposals proceeds fund.

a) Recycled capital grant fund

Group Association

£m £m

Recycled capital grant fund at 1 April 2011 4.7 4.0

Transfers of engagement - 0.8

Grants recycled 0.6 0.5

Utilised in the year (3.3) (3.3)

Recycled capital grant fund at 31 March 2012 2.0 2.0

b) Disposals proceeds fund

Group Association

£m £m

Disposals proceeds fund at 1 April 2011 0.4 0.4

Grants recycled 0.2 0.1

Utilised in the year (0.3) (0.3)

Disposals proceeds fund at 31 March 2012 0.3 0.2

Notes to the Financial Statements (continued)

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17. Financial instruments and risk management Financial risk management objectives and policies

The Group’s Treasury function is responsible for the management of funds and control of the associated risks. Other financial risks, for example arrears, are the responsibility of other operating divisions of the Group’s finance function. Treasury and finance activities are governed in accordance with the Board approved policy and the management of associated risks is reviewed and approved by the Group Audit Committee. Neither the Treasury nor Finance functions are profit centres.

There is further explanation of the Group’s approach to risk management in the Statement of Internal Control in the Board’s Report, and also in the Operating and Financial Review (Key risks of the Group; Treasury Management; Treasury Risk Management).

As of 1 April 2009, the Group has adopted the amendment to Financial Reporting Standard 29 ‘Financial Instruments: Disclosures’ for financial instruments that are measured in the Balance Sheet at fair value. This requires disclosure of fair value measurements by level in accordance with the following fair value measurement hierarchy:

•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

•Level 3 – Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The Group’s financial instruments that are measured and recognised at fair value include:

Financial assets

Loans and receivables 2012 2011

£m £m

Unlisted investments (note 11) 20.0 18.1

Rental debtors (note 13) 14.8 16.0

Other debtors 38.2 32.7

Finance lease receivable (note 20) 54.7 55.0

Cash at bank and in hand 25.7 73.4

153.4 195.2

Included within prepayments and other debtors are £6.5 million prepayments for Group (2011: £5.4 million).

Investments in the Balance Sheet were £39.5 million at 31 March 2012 (2011: £36.9 million). Of this value £19.5 million (2011: £18.8 million) were classed as available for sale assets and £20.0 million (2011: £18.1 million) were classed as loans and receivables.

Of the above loans and receivables balances, rental debtors and other debtors totalling £53.0 million (2011: £48.8 million) derive from debtors due within one year on the Balance Sheet. Debtors due within one year totalled £59.9 million at 31 March 2012 (2011: £55.5 million). The remaining balances of £6.9 million (2011: £6.7 million) are not considered to fall within the definition of a financial asset.

Available for sale assets 2012 2011

£m £m

Listed investments (note 11) 19.5 18.8

All significant inputs required to value the above investments are observable and as such the Group has classified them as Level 2.

Financial liabilities

As at 31 March the Group’s financial liability balances were as follows:

Other financial liabilities due in less than one year 2012 2011

£m £m

Debt finance 24.9 27.5

Trade creditors 10.4 10.7

Other creditors 34.7 35.2

70.0 73.4

Other creditors include other tax and social security, other creditors, future maintenance on home ownership schemes and SHG and other grants in advance. Creditors due within one year as disclosed in the Balance Sheet totalled £144.0 million (2011: £142.0 million). The difference between the Balance Sheet and the amounts disclosed above of £74.0 million (2011: £68.6 million) relates to balances that are not considered to fall within the definition of a financial liability. Debt finance consists of loans and mortgages and are presented before set up costs.

Other financial liabilities due in more than one year 2012 2011

£m £m

Debt finance 1,464.0 1,420.0

Net obligations under finance leases 0.8 0.8

Other creditors 7.4 -

1,472.2 1,420.8

Creditors due in more than one year as disclosed in the Balance Sheet totalled £1,460.6 million (2011: £1,411.0 million). The difference between the Balance Sheet and the amounts disclosed above of £11.6 million (2011: £9.6 million) relates to balances that are not considered to fall within the definition of a financial liability. Total short term and long term other financial liabilities at 31 March 2012 were £1,542.2 million (2011: £1,494.2 million).

Financial liabilities at fair value through Income and Expenditure Account 2012 2011

£m £m

Derivative financial instruments 0.1 0.5

The derivative financial instruments valued at fair value through income and expenditure relate to foreign currency swap financial instruments that are utilised by the Group to hedge foreign exchange risk associated with US dollar denominated debt. The fair value movement in the year of £0.4 million is shown as a credit to the Income and Expenditure Account, however this is offset by a loss of £0.5 million in relation to exchange rate movements incurred on the US dollar debt also in the Income and Expenditure Account.

Notes to the Financial Statements (continued)

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17. Financial instruments and risk management (continued)Valuation

Balances are valued in accordance with note 1 Principal Accounting Policies – Financial Instruments. Fair value equates to book value except in the following cases.

•Derivative financial instruments are measured at fair value. The fair value of the derivative financial instruments is arrived at by discounting future cash flows associated with each swap and comparing, for each swap, the cumulative total discounted sterling flows with the total discounted dollar flows translated at the year end exchange rate. The swap rate data used for discounting the flows is provided to the Group by external advisors. For the balances at 31 March 2012 the range of discount rates used was 1.73% to 3.75% (2011: 1.93% to 4.40%). The valuation takes into account the credit rating of the swap counterparty.

•Listed investments are measured at fair value. The fair value equates to the market value of these listed investments at the Balance Sheet date.

All assets and liabilities at fair value through the Income and Expenditure Account have been designated as such on initial recognition.

Senior secured notes and debenture stock, bank loans and mortgages, local authority loans and net obligations under finance leases are measured at book value. However, fair value can be calculated and these are disclosed in note 17a.

Loans denominated in foreign currency are translated at year end exchange rates.

Analysis of risks

a) Interest rate risk and exposure

Interest rate risk is defined as the risk that interest rates may change in the future materially affecting the Group’s liabilities and cash flows.

The interest rate exposure of the Group and Association net debt at 31 March 2012 after hedging instruments was:

Group Association

£m % £m %

Fixed rate financial liabilities 1,361.9 92.2 1,196.9 92.2

Floating rate financial liabilities 115.2 7.8 101.3 7.8

1,477.1 100.0 1,298.2 100.0

The weighted average interest rate of Group fixed rate financial liabilities is 6.10% (2011: 6.21%) and for the Association 6.14% (2011: 6.25%). The weighted average interest rate of the Group’s net financial liabilities is 5.91% (2011: 6.04%) and for the Association 5.97% (2011: 6.07%). The weighted average life of fixed rate financial liabilities for the Group is 23.3 years (2011: 23.9 years) and for the Association is 23.2 years (2011: 23.5 years).

The Group operates an interest rate policy designed to minimise interest cost and reduce volatility in cash flow and debt service costs. Group borrowings currently comprise 92.2% fixed rate debt (2011: 96.4%) and 7.8% floating rate debt (2011: 3.6%).

The Group’s cash flow interest rate risk relates to:

•variable rate financial instruments which are subject to rate changes – a 10% increase in interest rates would result in an additional charge to the Income and Expenditure Account of £0.1 million (2011: £0.1 million).

•fixed rate financial instruments where benefits of interest rate reductions are lost – a 0.25% rate reduction would result in a lost benefit of £3.6 million (2011: £3.2 million).

A comparison of the book value to fair value of the Group’s long-term borrowings at 31 March 2012 is set out on the following page.

2012 Book value

2012 Fair value

£m £m

Senior secured notes and debenture stock (note 16) 684.5 911.7

Bank loans and mortgages (note 16) 766.3 920.2

Local authority loans (note 16) 0.6 0.8

Net obligations under finance leases (notes 16, 19) 0.8 2.3

1,452.2 1,835.0

The following methods and assumptions have been applied in determining the value of the financial instruments in the table above.

•The book value of loans with a maturity of less than one year is assumed to equate to their carrying value.

•The fair value of loans greater than one year is established by utilising discounted cash flow valuation models or listed market prices where available.

•The fair value of balances shown above at a variable rate of interest is assumed to approximate to their book value.

Interest rate risk applies to debt finance.

b) Currency rate risk and exposure

Currency rate risk is the risk that foreign currency arrangements that the Group has entered into will be adversely affected by exchange rate movements. Hedging is defined as the practice of offsetting such risks and the organisation applies such practices. The hedge put in place by the organisation removes completely the currency risk, as explained below.

During 1995/96, the Group borrowed $80 million through the issue of a senior secured note at an interest rate of 7.15% repayable in 2012. The funds were swapped through a derivative financial instrument with a counterparty in order to fix the sterling borrowing at a total of £50.8 million, thus removing the associated currency rate risk from the Group. Under the terms of the agreements, capital repayments were to be made over the last five years of the 17 year borrowing terms. These capital repayments were funded by dollar receipts from the swap counterparty to whom the Group made semi-annual sterling payments of capital and interest during the borrowing terms.

This was a 100% effective economic hedge against currency risk. This arrangement terminated in April 2007 when a new swap arrangement was put in place whereby semi-annual payments were made to the new counterparty in line with the repayment terms of the senior secured notes. The fair value of these derivative financial instruments is disclosed in note 12. Interest on the capital payments (that arose under the original swap arrangement) and interest on the borrowings is included in interest receivable and interest payable respectively. These financial instruments are no longer considered to meet the requirements for hedge accounting.

In 2007 the Group borrowed $20 million, $80 million and £8 million through an issue of three senior secured notes at interest rates of 5.42%, 5.83% and 5.54% repayable in 2017, 2037 and 2017 respectively. The foreign currency funds have been swapped through derivative financial instruments with the new counterparty of the arrangement described above. This is a 100% effective hedge.

Notes to the Financial Statements (continued)

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17. Financial instruments and risk management (continued)Analysis of risks (continued)

b) Currency rate risk and exposure (continued)

The fair values of the swaps and loans at the year end, if an increase in interest rates of 1% occurred, are:

Asset Income and Expenditure

Account

Cash flow hedge reserve

£ £ £

In both dollar and sterling swap rates (2,611,238) 98,050 2,513,188

In sterling swap rates only 9,083,375 23,258 (9,106,633)

In dollar swap rate only (11,849,643) 173,245 11,676,398

In the year end exchange rate (201,472) (1,256) 202,728

In the year end exchange rate and in the dollar and sterling swap rates

(2,812,710) 96,794 2,715,916

Currency rate risk applies to the derivative financial instruments balance and underlying loans denominated in dollars.

c) Liquidity risk

Liquidity risk is the risk that the Group will fail to be able to access liquid funds - either through:

• lack of available facilities; or

• lack of secured, but available, facilities; or

• lack of identification of need to draw on available facilities.

The Treasury function ensures the above risks are managed by preparing cash forecasts on a daily and longer term basis to ensure that short and longer term requirements are known. The forecasts are cautious in the approach and are constantly updated to allow for sensitivity in assumptions. These are reported to the Group Director – Finance and Resources on a weekly basis. The forecasts identify when draw-downs on existing facilities are required and when existing facilities expire. Further facilities are negotiated and secured well in advance of them being needed for draw-down.

The Treasury function also manages a database of the Group’s stock in order to identify unencumbered stock for security of new facilities. A programme of valuations is maintained to ensure that optimum value as security is gained from the Group’s stock. These systems ensure that facilities are available to the Group which are secured and available to draw on as required.

The Group’s liquidity policy is to maintain sufficient liquid resources to cover cash flow requirements and fluctuations in funding to enable the Group to meet its financial obligations.

The Group has not defaulted on any of its loan arrangements in the year.

Liquidity risk applies to cash and all creditor balances.

Contractual cash flows for all financial liabilities

The following is an analysis of the anticipated contractual cash flows including interest and finance charges payable for the Group’s financial liabilities on an undiscounted basis. For the purpose of this table, debt is defined as bank loans, mortgages, deferred finance, discounted bonds and debenture stock. Interest is calculated based on debt held at 31 March. Floating rate interest is estimated using the prevailing interest rate at the Balance Sheet date.

At 31 March 2012

Debt Interest on debt

Obligationsunder

financeleases

Financecharge on

obligationsunder

financeleases

Otherliabilities

not in net

debt

US private placements

Interest on US private

placements

Total

£m £m £m £m £m £m £m £m

Due less than one year

(15.4) (83.3) - (0.1) (119.1) (10.2) (3.9) (232.0)

Between one and two years

(81.3) (81.3) - (0.1) (8.4) - (3.3) (174.4)

Between two and three years

(14.3) (79.9) - (0.1) - - (3.3) (97.6)

Between three and four years

(29.2) (78.8) - (0.1) - - (3.3) (111.4)

Between four and five years

(27.9) (77.2) - (0.1) - - (3.3) (108.5)

Greater than five years

(1,197.7) (1,037.1) (0.8) (2.7) - (59.8) (45.3) (2,343.4)

Gross contractual cash flows

(1,365.8) (1,437.6) (0.8) (3.2) (127.5) (70.0) (62.4) (3,067.3)

At 31 March 2011

£m £m £m £m £m £m £m £m

Due less than one year

(8.1) (84.0) (0.1) (0.1) (95.1) (19.7) (5.7) (212.8)

Between one and two years

(7.0) (84.1) (0.1) (0.1) (9.7) (10.2) (4.1) (115.3)

Between two and three years

(11.1) (84.1) (0.1) (0.1) - - (3.3) (98.7)

Between three and four years

(15.0) (83.7) (0.1) (0.1) - - (3.3) (102.2)

Between four and five years

(23.6) (82.6) (0.1) (0.1) - - (3.3) (109.7)

Greater than five years

(1,239.9) (1,308.4) (3.0) (2.3) - (59.8) (48.6) (2,662.0)

Gross contractual cash flows

(1,304.7) (1,726.9) (3.5) (2.8) (104.8) (89.7) (68.3) (3,300.7)

The above table relating to 31 March 2012 is based on existing facilities at the Balance Sheet date. However on 26 April 2012, a £300 million secured Bond due in 2047 was issued. This resulted in a change to the anticipated cashflows as follows:

Debt Interest on debt

£m £m

Due less than one year (15.4) (98.3)

Between one and two years (81.3) (96.3)

Between two and three years (14.3) (94.9)

Between three and four years (29.2) (93.8)

Between four and five years (27.9) (92.2)

Greater than five years (1,497.7) (1,487.1)

Gross contractual cash flows (1,665.8) (1,962.6)

Notes to the Financial Statements (continued)

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17. Financial instruments and risk management (continued)Analysis of risks continued

d) Credit risk

Credit risk applies to all debtor balances and to debt finance. The risk falls into two categories: financial and operational.

Financial

The Group manages credit risk by carrying out monthly credit checks on all counterparties from which the Group either sources funds or places deposits. The financial credit risk is mitigated to some extent by the existence of borrowing facilities with such counterparties. It is the Group’s policy not to take or place funds with any financial institution which is not accepted as a counterparty in the Group’s Financial Regulations. Such counterparties are approved by the Board but only on the achievement of the desired credit agency rating. The maximum exposure with a single funder is £288.0 million as at 31 March 2012 (2011: £240.1 million).

Operational

The majority of the operational debt at any given time relates to tenants and non-tenants of the Group. These debts are reported to management on a weekly basis and recovery of debts is coordinated through subsidiary and regional management teams. Performance of debt recovery is reviewed monthly by the Executive Directors.

Arrears

Gross rental arrears due as at 31 March 2012 totalled £14.5 million (2011: £18.8 million). The vast majority of this balance was past due as the majority of tenancy agreements state that the rent is due in advance. The age of these arrears was as follows:

Group 2012 Group 2011

£m £m

Less than 30 days 5.0 5.8

30 to 60 days 2.1 2.3

60 to 90 days 1.4 1.4

More than 90 days 6.0 9.3

14.5 18.8

There is a provision against £3.9 million (2011: £5.8 million) of this balance leaving a net rental arrears balance of £10.6 million (2011: £13.0 million) within rental tenant debtors in note 13.

Arrears provision

Group 2012 Group 2011

£m £m

Balance as at 1 April 5.8 6.1

Acquisitions - 0.2

Provided in the year 2.6 1.5

Amounts written off (4.5) (2.0)

Balance as at 31 March 3.9 5.8

The majority of the provision relates to arrears classified as more than 90 days old. £10.6 million is classified as overdue but not provided for.

Sundry debtors

Gross sundry debtor balances as at 31 March 2012 totalled £10.6 million (2011: £12.6 million). Of this balance £9.0 million (2011: £6.3 million) was deemed past due. Normal payment terms are 30 days. The age of gross sundry debtor balances were as follows:

Group 2012 Group 2011

£m £m

Less than 30 days 1.6 6.3

30 to 60 days 2.6 1.6

60 to 90 days 3.6 0.2

More than 90 days 2.8 4.5

10.6 12.6

There is a provision against £4.5 million (2011: £4.0 million) of this balance leaving a net sundry debtors balance of £6.1 million (2011: £8.6 million) within other debtors.

Sundry debtors provision

Group 2012 Group 2011

£m £m

Balance as at 1 April 4.0 3.7

Provided in the year 1.4 0.9

Amounts written off (0.9) (0.6)

Balance as at 31 March 4.5 4.0

At 31 March 2012 amounts not past due and not impaired are composed solely of £6.3 million (2011: £5.1 million) related to third parties who are non-tenants.

Provisions policy

The Group’s provisioning policy for rental arrears and for sundry debtors is included within note 1 – Principal Accounting Policies.

Amounts impaired but not fully provided

At 31 March 2012 sundry debtors of £0.3 million (2011: £0.5 million) were deemed impaired but were not fully provided for following an assessment of their recoverability. The provision against these amounts totals £0.1 million (2011: £0.4 million).

Renegotiated debt

The Group occasionally enters into payment agreements with tenants who have overdue debts. Plans of this nature extend the repayment period but do not change the amounts due. As at 31 March 2012 £0.2 million (2011: £0.5 million) of arrears balances were subject to payment agreements.

Summary of credit risk

The maximum credit risk at 31 March 2012 and 2011 was as follows:

Group 2012 Group 2011

£m £m

Investments (note 11) 39.5 36.9

Debtors (note 13) 114.6 110.5

Cash 25.7 73.4

179.8 220.8

Notes to the Financial Statements (continued)

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17. Financial instruments and risk management (continued)Analysis of risks (continued)

e) Concentration risk

Concentration risk is defined as the risk associated with a reliance on transactions that carry a similar risk profile.

Management determines concentrations of risk through its standard risk management procedures, as detailed in the Operating and Financial Review and Statement of Internal Control.

Management considers the Group’s main concentration of risk to be within rent and service charge arrears. The shared characteristic of this concentration is the social demographic of the client base that can be linked to lower credit quality. However, the arrears are from a number of types of tenancy:

•Rental

•Sheltered housing

•Supported housing

•Care homes

•Students

•Commercial tenants

•Shared ownership

•Home ownership

A reduced level of risk is associated with shared ownership and home ownership residents.

The maximum exposure to this risk is equal to the tenant arrears balance (net of provision) at 31 March 2012, £10.6 million (2011: £13.0 million).

Information on the Group’s spread of lenders is explained in note 17d.

f) Market rate risk

Market risk applies to listed investments. Listed investments are exposed to fluctuations in market values that are outside the Group’s control. Listed investments at 31 March 2012 totalled £19.5 million (2011: £18.8 million). The Group mitigates this risk by carrying out credit checks on all counterparties and investing only in those counterparties that achieve the desired credit agency rating. This is also explained in note 17d.

g) Collateral pledged

The Group holds debt servicing reserves if, and as, required by the various lenders. These are disclosed and described in note 11.

h) Collateral held

The Group does not hold any significant collateral.

i) Capital

The Group considers its capital balances to be share capital (note 22) and reserves (note 23). The revaluation reserve balance is entirely governed by market rates for listed investments. The revenue reserve is formed of Group surpluses and deficits from each year since the Group’s formation and following the adoption of SORP 2010 it also contains gains on business combinations that have arisen following the acquisition of subsidiaries. Acquisitions of social housing businesses that are in substance the gift of one business to another, are treated as non-exchange transactions. The fair value of the gift of the recognised assets and liabilities is treated as a gain or loss in the Income and Expenditure Account. See note 24(b) for further details.

None of these capital balances have a significant degree of active management, other than in the case of current year income and expenditure that contributes to revenue reserves, nor are there any restrictions on the Group in their use except for £0.4 million (2011: £0.2 million) relating to the charitable subsidiary, Glasgow Student Villages Limited and £0.2 million (2011: £0.2 million) in relation to Carr-Gomm which was acquired by the Group in 2010 and then transferred its engagements to Sanctuary Housing Association on 31 March 2011.

Notes to the Financial Statements (continued)

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18. Operating leasesAt 31 March 2012 the Group and Association had annual commitments under non-cancellable operating leases as follows:

Group Association

2012 2011 2012 2011

£m £m £m £m

Land and buildings:

Under one year 0.4 0.2 0.3 0.1

In the second to fifth year inclusive 0.4 - 0.4 -

In more than five years 0.3 0.7 0.3 0.6

1.1 0.9 1.0 0.7

Neither the Group or the Association hold any operating leases in respect of plant, machinery or other assets.

19. Finance leases payableAmounts payable under finance leases comprise:

Group Association

2012 2011 2012 2011

£m £m £m £m

Land and buildings:

Under one year - 0.1 - 0.1

In the second to fifth year inclusive - 0.4 - 0.4

In more than five years 0.8 3.0 0.8 3.0

Total gross payment 0.8 3.5 0.8 3.5

Financing costs - (2.7) - (2.7)

Net finance leases 0.8 0.8 0.8 0.8

20. Finance lease receivable

Group Association

2012 2011 2012 2011

£m £m £m £m

Land and buildings:

Under one year (0.1) (0.2) - -

In the second to fifth year inclusive 1.2 0.5 - -

In more than five years 53.6 54.7 - -

54.7 55.0 - -

The amounts receivable in respect of finance leases are due quarterly throughout the financial year. The amounts to be received are based upon a repayment schedule agreed between Glasgow Student Villages Limited and Glasgow University. These amounts are expected to be paid over the next 22 years. The timings of the capital repayments can vary.

21. Provision for liabilities and charges

Group Association

£m £m

At 1 April 2011 4.5 1.7

Provided in the year 0.2 0.2

Utilised during the year (1.6) (1.6)

At 31 March 2012 3.1 0.3

The opening and closing provision relate to employee related costs in both the Group and the Association. The opening provision and the amounts provided in the year are expected to be settled in the next 24 months.

22. Called up share capital

Group and Association

Each member holds one share of £1 in the Association 2012 2011

£ £

Allotted, issued and fully paid

At 1 April 46 54

Issued during the year 2 1

Redeemed during the year (4) (9)

At 31 March 44 46

Each share carries voting rights but not rights to dividends, distributions on winding up or rights of redemption. The share issued and those redeemed during the year were as a result of changes to the Board in the current year and redemption of past shares issued to past Board members.

23. ReservesGroup

Revenue reserve

Restricted reserve

Negative goodwill

Revaluation reserve

Cash flow hedge reserve

Total

£m £m £m £m £m £m

At 1 April 2011 247.4 0.4 403.6 2.0 7.2 660.6

Prior year adjustment - note 24 393.2 - (403.6) - - (10.4)

At 1 April 2011 restated 640.6 0.4 - 2.0 7.2 650.2

Surplus for the year 23.5 0.1 - - - 23.6

Reclassification (0.1) 0.1 - - - -

Actuarial loss on pension schemes (9.9) - - - - (9.9)

Revaluation of listed investments - - - 1.3 - 1.3

Recycling in respect of terminated hedge relationship

- - - - (2.1) (2.1)

Gain on hedge instrument - - - - 5.7 5.7

At 31 March 2012 654.1 0.6 - 3.3 10.8 668.8

Restricted reserves

Within the Group, the reserves of a subsidiary, Glasgow Student Villages Limited, are also restricted in application. These total £0.4 million at 31 March 2012 (2011: £0.2 million). £0.2 million of the reserves acquired with Carr-Gomm are also restricted in application.

Notes to the Financial Statements (continued)

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23. Reserves (continued)Association

Revenue reserve

Restricted reserve

Negative goodwill

Revaluation reserve

Cash flow hedge reserve

Total

£m £m £m £m £m £m

At 1 April 2011 203.6 0.2 193.8 1.3 7.0 405.9

Prior year adjustment – note 24 193.8 - (193.8) - - -

At 1 April 2011 restated 397.4 0.2 - 1.3 7.0 405.9

Surplus for year 237.1 - - - - 237.1

Actuarial loss on pension scheme (9.5) - - - - (9.5)

Revaluation of listed investments - - - 1.8 - 1.8

Recycling in respect of terminated hedge relationship

- - - - (2.1) (2.1)

Gain on hedge instrument - - - - 5.7 5.7

At 31 March 2012 625.0 0.2 - 3.1 10.6 638.9

Restricted reserves

Within the Association £0.2 million of the reserves acquired on transfer of engagement of Carr-Gomm are restricted in application.

24. Prior year adjustmentsa) SORP 2010

The Group has adopted the Statement of Recommended Practice for Registered Social Landlords (Revised 2010) (‘SORP 2010’). Certain aspects of this give rise to a change in accounting policy as described in note 1. Under SORP 2010, acquisitions of social housing businesses that are in substance the gift of one business to another, are treated as non-exchange transactions. The fair value of the gift of the recognised assets and liabilities is treated as a gain or loss in the Income and Expenditure Account in the year in which the transaction occurs. In prior years, gains on business combinations were held on the balance sheet as negative goodwill within reserves and amortised.

The prior year adjustment has increased the surplus by £32.6 million for the year ended 31 March 2011 (Association £142.6 million) and increased revenue reserves by £403.6 million (Association £193.8 million).

b) Provision for loss on sale of fixed assets

In June 2011 the Group agreed in principle to swap £28.6 million of its social housing portfolio with another housing association in return for other property assets. The financial statements for 2011 originally recognised the release of £11.9 million negative goodwill against this transaction with no resulting gain or loss on disposal. As a consequence of adopting SORP 2010 in the financial statements for 2011 negative goodwill has been reclassified to reserves and as a result is not available for release. The restated financial statements show a provision for loss on sale of fixed assets of £10.4 million being the difference in value between those assets acquired and sold without the corresponding release of negative goodwill.

25. Retirement benefits The Group participates in nine (2011: ten) funded defined benefit pension schemes. All schemes’ assets are held in separate funds administered by the Trustees of each scheme. The Group withdrew from the West Yorkshire Pension Fund on 31 August 2011. The results have been disclosed to the date of withdrawal.

Sanctuary Housing Association Scheme

Sanctuary Housing Association’s scheme forms part of the total fund administered by The Pensions Trust for Charities and Voluntary Organisations (‘The Pensions Trust’). Sanctuary Housing Association has contributed at a rate of 18.6% to 21.6% of pensionable salaries for 2012 and 2011.

Members have paid contributions at a rate between 5% to 8% of pensionable salaries for 2011 and 2012. The scheme is closed to new members so under the projected unit method the current service cost will increase as the members approach retirement.

Cambridgeshire County Council Pension Fund

Sanctuary Housing Association (previously administered by Hereward Housing Association Limited before its transfer of engagement) is an admitted body of the Cambridgeshire County Council Pension Fund. Sanctuary Housing Association has contributed at a rate of 22.0% of pensionable salaries for 2012 and 16.7% for 2011. Members have paid contributions at the rate of between 5.5% and 7.5% of pensionable salaries for 2012 and 2011.

London Borough of Greenwich Pension Fund

Sanctuary Housing Association is an admitted body of the London Borough of Greenwich Pension Fund. Sanctuary Housing Association has contributed at a rate of 21.0% of pensionable salaries for 2012 and 2011. Members have paid contributions at the rate of between 5.5% and 7.5% of pensionable salaries for 2012 and 2011.

Oxfordshire County Council Pension Fund

Sanctuary Housing Association is an admitted body of the Oxfordshire County Council Pension Fund. Charter Community Housing Limited and Banbury Homes Housing Association Limited were previously admitted bodies of Oxfordshire County Council Pension Fund before their transfers of engagements. The Association has contributed at a rate of between 13.7% and 15.1% for 2012 and 16.7% and 21.9% of pensionable salaries for 2011. Members have paid contributions at a rate of between 5.5% and 7.5% for 2012 and 5.9% and 7.2% of pensionable salaries for 2011.

London Borough of Hackney Pension Fund

Sanctuary Housing Association is an admitted body of the London Borough of Hackney Pension Fund. Sanctuary Housing Association has contributed at a rate of 27.3% of pensionable salaries for 2012 and 26.0% for 2011.

Essex County Council Pension Fund

Rochford Housing Association Limited is an admitted body of the Essex County Council Pension Fund. Rochford Housing Association Limited has contributed at a rate of 13.6% of pensionable salaries for 2012 and 17.4% for 2011. Members have paid contributions at the rate of between 5.5% and 7.5% of pensionable salaries for 2012 and 2011.

Notes to the Financial Statements (continued)

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25. Retirement benefits (continued)Devon County Council Pension Fund

Sanctuary Housing Association is an admitted body of the Devon County Council Pension Fund. Riviera Housing Trust Limited was previously an admitted body of Devon County Council Pension Fund before its transfer of engagement. The Association has contributed at a rate of £1,570 per month for 2012 and 21.5% of pensionable salaries for 2011. Members have paid contributions at a rate of between 5.5% and 7.5% of pensionable salaries for 2012 and 2011.

Strathclyde Pension Fund

Cumbernauld Housing Partnership Limited is an admitted body of the Strathclyde Pension Fund, the Scottish Local Government Pension Scheme. Cumbernauld Housing Partnership Limited has contributed at a rate of 19.3% of pensionable salaries for 2012 and 18.2% of pensionable salaries for 2011. Members have contributed at a rate of between 5.5% and 12.0% of pensionable salaries for 2012 and 5.5% and 8.0% of pensionable salaries for 2011.

Warwickshire County Council Pension Fund

Heart of England Housing and Care Limited is an admitted body of the Warwickshire County Council Pension Fund. Heart of England Housing and Care Limited has contributed at a rate of 19.2% of pensionable salaries for 2012 and 19.2% for 2011. Members have contributed at a rate of between 5.5% and 7.5% of pensionable salaries for 2012 and between 5.8% and 7.2% for 2011.

Financial Reporting Standard 17 Retirement Benefits (Revised)

The financial assumptions used to calculate scheme liabilities under Financial Reporting Standard 17 ‘Retirement Benefits (Revised)’ in respect of defined benefit schemes are as follows:

Expected return on assetsThe expected return on equity assumption is 7.3% pa as at 31 March 2012 (2011: 8.0%). Property is assumed to return 6.3% pa (2011: 7.0%).

The expected return on bonds is as follows:

2012 2011

% %

Gilts (fixed interest) 3.30 4.40

Gilts (index linked) 3.10 4.10

Corporate bonds 4.60 5.50

The returns are derived by considering the mix of corporate bonds and gilts, and the spot yields available to them at the beginning of the accounting year.

The assumptions for the expected return on cash is the Bank of England base interest rate which was 0.5% pa as at 31 March 2012 (2011: 0.5%).

The fair value of assets in the scheme are:

Group Association

2012 2011 2012 2011

£m % £m % £m % £m %

Equities 75.2 71.9 74.2 73.3 65.9 71.8 65.3 73.3

Bonds 18.2 17.4 17.6 17.4 16.3 17.7 15.9 17.9

Property 7.1 6.8 6.4 6.5 5.9 6.4 5.5 6.2

Other 4.1 3.9 3.0 2.8 3.8 4.1 2.3 2.6

Total value of assets 104.6 100.0 101.2 100.0 91.9 100.0 89.0 100.0

Scheme assets/(liabilities) are reflected in the Balance Sheets:

Group Association

2012 2011 2012 2011

£m £m £m £m

Fair value of employer assets 104.6 101.2 91.9 89.0

Present value of funded liabilities (147.3) (134.6) (132.1) (120.2)

Net under funding in funded plans (42.7) (33.4) (40.2) (31.2)

Present value of unfunded liabilities (0.2) - (0.2) -

Net liability (42.9) (33.4) (40.4) (31.2)

Notes to the Financial Statements (continued)

2012 2011

All schemes % %

Inflation 3.20 3.40

Rate of increase in salaries 4.20 4.40

Rate of increase for pensions in payment 2.30 2.70

Rate of increase for deferred pensions 3.20 3.40

Discount rate 4.80 5.50

The assumptions for mortality rates use the Self Administered Pension Scheme (SAPS) All Pensioners (excluding dependents) ‘amounts’ tables, with projected improvement rates varying by year of birth with medium cohort and 1.0% males and 0.75% females pa minimum improvements. Based on these assumptions the average future life expectancies at age 65 are:

Males Females

Current pensioners 22.0 years 23.7 years

Future pensioners 23.4 years 24.9 years

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25. Retirement benefits (continued)An analysis of the expense reflected in the Income and Expenditure Account:

Group Association

2012 2011 2012 2011

£m £m £m £m

Amount charged to operating surplus:

Current service cost 3.3 4.2 3.0 3.7

Past service cost 0.1 (4.5) 0.1 (2.5)

Losses on curtailments and settlements (0.1) - (0.1) -

Total (credited)/charged to operating surplus 3.3 (0.3) 3.0 1.2

Amount charged to finance cost:

Expected return on scheme assets (7.4) (6.9) (6.5) (5.5)

Interest cost 7.4 7.6 6.6 6.2

Total amount charged to financing cost - 0.7 0.1 0.7

Actual return on assets 2.5 2.7 2.1 1.0

Reconciliation of the opening and closing balances of the present value of scheme liabilities:

Group Association

2012 2011 2012 2011

£m £m £m £m

Opening defined benefit obligation 134.6 136.0 120.2 112.0

Opening defined benefit obligation on acquisitions - 8.3 - -

Opening defined benefit obligation on transfer of engagements

- - - 13.6

Service cost 3.3 4.2 3.0 3.7

Interest cost 7.4 7.6 6.6 6.2

Past service costs 0.1 (4.5) 0.1 (2.5)

Losses on curtailments 0.3 - 0.4 -

Contributions by employees 1.4 1.5 1.3 1.4

Actuarial (gains)/losses 5.4 (15.1) 5.2 (11.7)

Settlements (0.8) - (0.8) -

Net benefits paid (including expenses) (4.2) (3.4) (3.7) (2.5)

Closing defined benefit obligation 147.5 134.6 132.3 120.2

Reconciliation of opening and closing balances of the fair value of the scheme assets:

Group Association

2012 2011 2012 2011

£m £m £m £m

Opening fair value of the scheme assets 101.2 87.8 89.0 70.5

Opening fair value of the scheme assets on acquisitions

- 6.1 - -

Opening fair value of the scheme assets on transfers of engagements

- - - 11.9

Expected return 7.4 6.9 6.5 5.5

Actuarial losses (4.2) (2.0) (4.3) (0.8)

Contributions by employer 3.6 4.3 3.7 2.8

Contributions by employees 1.4 1.5 1.3 1.6

Settlements (0.6) - (0.6) -

Net benefits paid (including expenses) (4.2) (3.4) (3.7) (2.5)

Closing fair value of the scheme assets 104.6 101.2 91.9 89.0

The total and cumulative amount recognised in the Statement of Total Recognised Surpluses and Deficits:

Group Association

2012 2011 2012 2011

£m £m £m £m

Net actuarial (losses)/gains recognised in year (9.9) 13.1 (9.5) 10.9

Net cumulative actuarial losses (35.5) (25.6) (31.1) (21.6)

History of experience gains and losses:

Group

2012 2011 2010 2009 2008

£m £m £m £m £m

Defined benefit obligations (147.5) (134.6) (136.0) (83.1) (88.2)

Scheme assets 104.6 101.2 87.8 59.2 72.0

Deficit (42.9) (33.4) (48.2) (23.9) (16.2)

Experience gains/(losses) on scheme liabilities 1.3 2.4 1.0 0.4 (5.1)

Actual return less expected return on scheme assets (4.2) (2.0) 18.0 (22.8) (8.0)

Association

2012 2011 2010 2009 2008

£m £m £m £m £m

Defined benefit obligations (132.3) (120.2) (112.0) (61.0) (67.0)

Scheme assets 91.9 89.0 70.5 42.7 53.6

Deficit (40.4) (31.2) (41.5) (18.3) (13.4)

Experience gains/(losses) on scheme liabilities 1.1 1.2 0.7 0.1 (4.1)

Actual return less expected return on scheme assets (4.3) (0.8) 14.3 17.5 (7.2)

Notes to the Financial Statements (continued)

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25. Retirement benefits (continued)Sanctuary Group expects to contribute the following amounts to the defined benefit schemes during the year ended 2013:

£m

Sanctuary Housing Association 5.3

Cambridgeshire County Council 0.3

London Borough of Greenwich 0.2

Oxfordshire County Council 0.2

London Borough of Hackney -

Essex County Council 0.1

Devon County Council -

Strathclyde 0.1

Warwickshire County Council Pension Fund 0.1

6.3

Social Housing Pension Scheme (SHPS)

The Group has one subsidiary entity which participates in the Social Housing Pension Scheme (SHPS), Asra Midlands Housing Association Limited. The Beth Johnson Housing Association Limited and Shaftesbury Housing Association also participated before they transferred their engagements to Sanctuary Housing Association on 28 December 2011 and 26 April 2011 respectively.

SHPS is a multi-employer defined benefit scheme, which is funded and contracted out of the state scheme. Employer participation in SHPS is subject to adherence with the employer responsibilities and obligations as set out in the “SHPS House Policies and Rules Employer Guide”.

SHPS operated a single final salary benefit structure, with a 1/60th accrual rate, until 31 March 2007. From April 2007 alternative benefit structures were available.

The Group elected to operate a final salary benefit structure with a 1/60th accrual rate for active members as at 31 March 2007, and closed it to new entrants from 1 January 2007.

During the year the participating employers of SHPS have paid contributions at the rate of 6.3% to 11.8% (2011: 7.8% to 13.3%) of pensionable salaries. Member contributions varied between 7.5% and 13.4% (2011: 5.5% and 13.4%) of pensionable salaries depending on their age.

As at the Balance Sheet date there were 115 active members of SHPS by the Group. The annual pensionable payroll in respect of these members was £2.4 million (2011: £5.0 million).

It is not possible in the normal course of events to identify on a consistent and reasonable basis the share of underlying assets and liabilities belonging to

individual participating employers. This is because the scheme is a multi-employer scheme where the scheme assets are co-mingled for investment purposes and benefits are paid from total scheme assets. Accordingly, the accounting charge for the year under Financial Reporting Standard 17 ‘Retirement Benefits’ (Revised) represents the employer contribution payable.

The Group contributions to SHPS during the year amounted to £0.4 million (2011: £0.4 million). This figure is not included in the analysis of other defined benefit schemes.

The last formal valuation of the scheme was performed as at 30 September 2008 by a professionally qualified actuary using the Projected Unit Method. The market value of SHPS’s assets at the valuation date was £1,527.0 million. The valuation revealed a shortfall of assets compared with the value of liabilities of £663.0 million, equivalent to a past service funding level of 70%.

The financial assumptions underlying the valuation as at 30 September 2008 were as follows:

% pa

Valuation discount rates

Pre-retirement 7.80

Non pensioner post retirement 6.23

Pensioner post retirement 5.60

Pensionable earnings 4.70

Price inflation 3.20

Pension increases

Pre 88 GMP -

Post 88 GMP 2.80

Excess over GMP 3.00

Expenses for death in service insurance, administration and PPF levy are included in the contribution rate.

The valuation was carried out using the following demographic assumptions:

Mortality pre retirement – PA92 Year of Birth, long cohort projection, minimum improvement 1% pa.

Mortality post retirement – 90% S1PA Year of Birth, long cohort projection, minimum improvement 1% pa.

For an employer, such as the Group, which operates a 1/60th accrual rate, the long-term joint contribution rates (that is the combined rate from employers and members) that will apply from April 2010 required to meet the cost of future benefit accrual was assessed at 17.8% of pensionable salaries.

Following consideration of the results of the actuarial valuation it was agreed that the shortfall of £663.0 million would be dealt with by the payment of deficit contributions of 7.5% of pensionable salaries, increasing each year in line with salary growth assumptions, from 1 April 2010 to 30 September 2020, dropping to 3.1% from 1 October 2020 to 30 September 2023. Pensionable earnings at 30 September 2008 are used as the reference point for calculating these deficit contributions.

The Scheme’s 30 September 2011 valuation is currently in progress and will be finalised by 31 December 2012. The results of the 2011 valuation will be included in next year’s Disclosure Note.

Employers that have closed to new entrants are required to pay an additional employer contribution loading of 3.0% to reflect the higher costs of a closed arrangement.

As a result of pension scheme legislation there is a potential debt on the employer that could be levied by the Trustee of the SHPS. The debt is due in the event of the employer ceasing to participate in SHPS or SHPS winding up.

The debt for SHPS as a whole is calculated by comparing the liabilities for the SHPS (calculated on a buy-out basis, that is the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the SHPS. If the liabilities exceed assets there is a buy-out debt.

The leaving employer’s share of the buy-out debt is the proportion of the scheme’s liability attributable to employment with the leaving employer compared to the total amount of the scheme’s liabilities (relating to employment with all the currently participating employers). The leaving employer’s debt therefore includes a share of any ‘orphan’ liabilities in respect of previously participating employers. The amount

of the debt therefore depends on many factors including total scheme liabilities, scheme investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time.

The participating employers have been notified by The Pension Trust of the estimated employer debt on withdrawl from SHPS based on the financial position of SHPS as at 30 September 2011. As at this date the estimated employer debt for the Group was £83.6 million (2011: £65.3 million) and for the Association £80.2 million (2011: £26.8 million).

Scottish Housing Associations Pension Scheme (SHAPS)

Cumbernauld Housing Partnership Limited participates in the SHAPS (‘the Scheme’).

The Scheme is funded and is contracted out of the state pension scheme.

Cumbernauld Housing Partnership Limited continues to offer membership of the Scheme to its employees.

It is not possible in the normal course of events to identify the share of underlying assets and liabilities belonging to an individual participating employer. The Scheme is a multi-employer arrangement where the assets are co-mingled for investment purposes, benefits are paid from total Scheme assets and the contribution rate for all employers is set by reference to the overall financial position of the Scheme rather than by reference to individual employer experience. Accordingly, due to the nature of the Scheme, the accounting charge for the financial year under Financial Reporting Standard 17 ‘Retirement Benefits’ (Revised) represents the employer contribution payable.

The Trustee commissions an actuarial valuation of the Scheme every three years. The main purpose of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required, so that the Scheme can meet its pension obligations as they fall due. The last formal valuation of the Scheme was performed as at 30 September 2009 by a professionally qualified Actuary using the ‘Projected Unit Credit’ method. The market value of the Scheme’s assets at the valuation date was £295 million. The valuation revealed a shortfall of assets compared with the value of liabilities of £160 million, equivalent to a past service funding level of 64.8%.

The Scheme Actuary has prepared an Actuarial Report that provides an approximate update on the funding position of the Scheme as at 30 September 2011. Such a report is required by legislation for years

Notes to the Financial Statements (continued)

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25. Retirement benefits (continued)in which a full actuarial valuation is not carried out. The funding update revealed an increase in assets of the Scheme to £341 million and indicated an increase in the shortfall of assets compared to liabilities to approximately £207 million, equivalent to a past service funding level of 62.2%.

Following a change in legislation in September 2005 there is a potential debt on the employer that could be levied by the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme or the Scheme winding up.

The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on a buy-out basis, that is the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Scheme. If the liabilities exceed assets there is a buy-out debt.

The leaving employer’s share of the buy-out debt is the proportion of the Scheme’s liability attributable to employment with the leaving employer compared to the total amount of the Scheme’s liabilities (relating to employment with all the employers). The leaving employer’s debt therefore includes a share of any ‘orphan’ liabilities in respect of previously participating employers. The amount of the debt therefore depends on many factors including total Scheme liabilities, Scheme investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time.

Cumbernauld Housing Partnership Limited has been notified by the Pensions Trust of the estimated

employer debt on withdrawal from the Scheme based on the financial position of the Scheme as at 30 September 2011. As at this date the estimated employer debt for Cumbernauld Housing Partnership Limited was £1.9 million.

Growth plan

Sanctuary Housing Association, Sanctuary Care Limited and Cumbernauld Housing Partnership Limited participate in the Pensions Trust’s Growth Plan. This is a multi-employer defined benefit pension plan. It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of the underlying assets and liabilities belonging to each individual participating employer. This is because contributions are co-mingled for investment purposes, and benefits are paid out of the Plan’s total assets. Accordingly the Plan is accounted for as a defined contribution scheme. The Plan is funded and is not contracted-out of the State scheme. There are 14 active members of the Plan. The participating employers have not contributed to the Plan in the year. The participating employers have been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Plan as at 30 September 2011. As at 31 March 2012 the estimated employer debt for the Group was £0.6 million (2011: £0.4 million) and for the Association £0.5 million (2011: £0.4 million).

Defined contribution scheme

The Group participates in a defined contribution scheme for members of staff. The cost of the defined contribution scheme amounts to £939,286 (2011: £699,148). As at the year end there were £154,511 of accrued contributions due for payment after the year end (2011: £135,939).

26. Capital commitments

Group Association

2012 2011 2012 2011

£m £m £m £m

Expenditure contracted 148.0 230.9 122.1 85.5

Authorised expenditure not contracted 184.9 43.2 61.7 26.7

332.9 274.1 183.8 112.2

For the Group, of the £332.9 million (2011: £274.1 million) of capital commitments at 31 March 2012, £73.0 million (2011: £73.8 million) will be financed by grant and other public finances.

For the Association, of the £183.8 million (2011: £112.2 million) of capital commitments at 31 March 2012, £35.0 million (2011: £33.5 million) will be financed by grant and other public finances.

The remainder will be funded through reserves and private finance.

27. Agreements to improve existing propertiesThe Group has, in recent years, received a number of stock transfers from councils. As part of the transfer, each council has made a commitment to the Group to have the properties refurbished and modernised and brought into a good state of repair. Immediately prior to the transfer, each council contracted with the Group to carry out the refurbishment works on its behalf. Each council’s obligation to carry out the works is in effect matched by the Group’s obligation to carry out the works. As a specific right of set off exists, a net basis has been adopted in respect of these obligations and neither the asset nor the liability has been recognised. At 31 March 2012, the gross values of the balances that have been offset are £16.1 million (2011: £36.0 million).

28. Notes to the Consolidated Cash Flow Statementa) Reconciliation of operating surplus to net cash inflow from operating activities

2012 2011

£m

Restated £m

Group operating surplus 104.4 94.3

Share of joint venture (note 32) (0.1) (0.1)

Amortisation of intangible assets (note 8) 0.1 0.1

Impairment of tangible assets (note 9, 10) - 0.4

Surplus on first tranche sales (0.3) (0.3)

Depreciation on fixed assets (note 9, 10) 44.6 41.7

Decrease/(increase) in debtors 4.9 (2.0)

(Decrease)/increase in creditors (3.0) 6.7

Movement on provisions (1.4) 2.1

Net cash inflow from operating activities 149.2 142.9

b) Detailed analysis of cash flows 2012 2011

£m £m

Servicing of finance and returns on investments

Interest received 1.6 2.0

Interest paid (88.1) (87.0)

Interest element of finance lease rentals (0.1) (0.1)

(86.6) (85.1)

Capital expenditure and financial investment

Acquisition and construction of housing properties (191.0) (200.1)

Purchase of other fixed assets and investments (22.7) (28.5)

Capital grants received 45.5 42.0

Sales of housing properties 10.6 11.3

Sales of other fixed assets 5.6 3.9

(152.0) (171.4)

Acquisitions

Carr-Gomm - 6.0

Heart of England Housing and Care Limited - 0.5

- 6.5

Financing

Loan advances received 85.7 165.1

Loan redemption payments (22.9) (3.7)

Loan principal repayments (21.1) (32.1)

Net cash inflow from financing 41.7 129.3

Notes to the Financial Statements (continued)

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28. Notes to the Consolidated Cash Flow Statement (continued)c) Analysis of net debt

At 1 April 2011

Cash flows

Fair value

Non-cash changes

At 31 March 2012

£m £m £m £m £m

Cash at bank and in hand 73.4 (47.7) - - 25.7

Debt due less than one year (26.9) 17.7 - (15.7) (24.9)

Debt due after more than one year (1,406.6) (59.4) - 14.7 (1,451.3)

Finance leases (0.8) - - - (0.8)

Derivative financial instruments 13.9 - 6.4 - 20.3

(1,347.0) (89.4) 6.4 (1.0) (1,431.0)

Fair value changes relate to the fair value movement of foreign exchange derivatives.

Non cash changes reflect progression in the ageing of debt due after more than one year to less than one year, the retranslation of dollar denominated loan notes at the year end spot rate and the amortisation of premium and discount recognised on issue of bonds.

29. Related party transactionsRelated party transactions between members of the Board and the entities within the Group are disclosed in the Board’s Report and note 5 – Directors’ emoluments.

The Group has an investment in loan notes in ASK (Holdings) Limited, a joint venture (further information on the joint venture is contained within note 31). The current carrying value of the investment is £933,940, of which £678,500 relates to loan notes (2011: £946,105 and £690,775 respectively). During the year the Group received £6,335,838 (2011: £6,075,535) in respect of management fees in relation to the operation of the three care homes, and £89,211 (2011: £90,825) in respect of interest charges. The Group received no dividends (2011: £nil) from ASK (Holdings) Limited during the year. There are no amounts due from or to related parties at 31 March 2012 (2011: £nil). There are no other related party transactions.

30. Investments in subsidiaries

£m

As at 1 April 2011 and 31 March 2012 0.1

Company Nature of business

Access Apna Ghar Housing Association Limited* Registered provider

Asra Midlands Housing Association Limited Registered provider

Bateman Memorial Almshouses Charity Registered almshouse

Cumbernauld Housing Partnership Limited Registered provider

Glasgow Student Villages Limited Student accommodation

Heart of England Housing and Care Limited Care home development and management

Riverside Apartments Management Limited Property management

Rochford Housing Association Limited Registered provider

Sanctuary Affordable Housing Limited (incorporated 28 October 2011) Registered provider

Sanctuary Green Technologies Limited (incorporated 27 October 2011) Non trading

Sanctuary Capital Plc* Group financing

Sanctuary Care Limited Care home development and management

Sanctuary Home Care Limited Domiciliary care

Sanctuary Housing Services Dormant

Sanctuary Land Company Limited Property management

Sanctuary London Student Accommodation Limited (incorporated 6 February 2012) Dormant

Sanctuary Management Services Limited Management company

Sanctuary Maintenance Contractors Limited Property maintenance services

Sanctuary Scotland Housing Association Limited Registered provider

Sanctuary Treasury Limited Group financing

Shiregreen Community Homes Limited Dormant

Spiral Developments Limited Dormant

Spiral (Number 2) Housing Association Limited Dormant

Spon Lane Trust Almshouses Registered almshouse

St Albans Mount Management Limited Property management

The Hertford Housing Company Limited Property development and management

* These entities are wholly owned subsidiary companies of wholly owned subsidiaries of Sanctuary Housing Association.

All subsidiaries are incorporated or registered in England and Wales with the exception of Sanctuary Scotland Housing Association Limited, Glasgow Student Villages Limited, Cumbernauld Housing Partnership Limited and Access Apna Ghar Housing Association Limited all of which are incorporated in Scotland. All subsidiaries are 100% owned or controlled by Sanctuary Housing Association except Riverside Apartments Management Limited, of which Sanctuary Housing Association owns 78% and Glasgow Student Villages Limited, of which Sanctuary Housing Association controls 71.4%.

The following subsidiaries transferred their engagements into Sanctuary Housing Association (further information is contained within note 31):

Shaftesbury Housing Association on 26 April 2011.

The Beth Johnson Housing Association Limited on 28 December 2011.

UniFin City Inc Limited was dissolved on 6 March 2012.

Notes to the Financial Statements (continued)

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31. Transfers of engagementsOn 26 April 2011 the assets and liabilities of Shaftesbury Housing Association were transferred into Sanctuary Housing Association through a transfer of engagement and on 28 December 2011 the assets and liabilities of The Beth Johnson Housing Association Limited were transferred into Sanctuary Housing Association through a transfer of engagement.

These transfers have been incorporated into the Association’s financial statements using the acquisition method of accounting. The entities have been incorporated into the consolidated Group financial statements since their original acquisitions by the Group.

The assets and liabilities of the entities as at the date of transfer into Sanctuary Housing Association are set out below.

Transfers of engagements are acquisition accounted. Housing assets have been revalued for existing use value – social housing (EUV-SH) for all acquired properties. Other specific entity adjustments are outlined below:

Shaftesbury Housing Association Book value Provisional fair value adjustments

Fair value

£m £m £m

Assets

Tangible fixed assets

- Property cost 353.4 123.6 477.0

- Property depreciation (18.9) 18.9 -

- Property grant (128.6) - (128.6)

- Operating assets 2.3 - 2.3

Investments 12.7 - 12.7

Debtors 3.4 - 3.4

Cash 1.4 - 1.4

225.7 142.5 368.2

Liabilities

Creditors less than one year (23.2) - (23.2)

Creditors greater than one year (188.3) - (188.3)

(211.5) - (211.5)

Net assets 14.2 142.5 156.7

Consideration -

Gain on business combination arising on transfer 156.7

The Beth Johnson Housing Association Limited Book value Provisional fair value adjustments

Fair value

£m £m £m

Assets

Tangible fixed assets

- Property cost 235.6 17.8 253.4

- Property depreciation (10.8) 10.8 -

- Property grant (128.9) - (128.9)

- Operating assets 0.6 - 0.6

Investments 4.5 - 4.5

Debtors 2.2 - 2.2

Cash 0.7 - 0.7

103.9 28.6 132.5

Liabilities

Creditors less than one year (4.2) - (4.2)

Creditors greater than one year (64.7) - (64.7)

(68.9) - (68.9)

Net assets 35.0 28.6 63.6

Consideration -

Gain on business combination arising on transfer 63.6

The prior year gain on business combinations for Group relates to gains on acquisitions as follows:

2011

Restated £m

Carr-Gomm 31.3

Heart of England Housing and Care Limited 8.2

Cumbernauld Housing Partnership Limited* (0.5)

39.0

The prior year gain on business combinations for Association relates to transfers of engagements as follows:

2011

Restated £m

Charter Community Housing Limited and Charter Community Services Limited 44.0

Banbury Homes Housing Association Limited 40.2

Riviera Housing Trust Limited 28.1

Carr-Gomm 32.6

Hereward Housing Association Limited* (1.1)

143.8

* relates to adjustments made to provisional fair values

Notes to the Financial Statements (continued)

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32. Joint venturesThe joint venture of ASK (Holdings) Limited and its subsidiary, ASK (Greenwich) Limited, have a non-coterminous year end with the Group of 30 June. As a result entries are consolidated from management accounts as permitted by Financial Reporting Standard 9 ‘Associates and Joint Ventures’. The companies have no material differences in accounting policies to the Group.

The Association’s investment in joint ventures is £0.8 million (2011: £0.9 million).

ASK (Holdings) Limited

Profit and Loss for the year ended 31 March 2012

During the year ended 31 March 2012 ASK (Holdings) Limited received no income and incurred no expenditure. Consequently, it made neither a profit nor a loss.

Balance Sheet as at 31 March 2012

Total2012

Sanctuaryshare (50%)

Total2011

Sanctuaryshare (50%)

£m £m £m £m

Fixed asset investments 1.4 0.8 1.4 0.8

Current assets – debtors 0.1 - 0.1 -

Gross assets 1.5 0.8 1.5 0.8

Creditors: amounts due after more than one year (1.4) (0.8) (1.4) (0.8)

Current liabilities – creditors (0.1) - (0.1) -

Gross liabilities (1.5) (0.8) (1.5) (0.8)

Net assets - - - -

Capital and reserves – share capital - - - -

- - - -

Gross assets 1.5 0.8 1.5 0.8

Less group items:– subordinated debt

(1.4) (0.7) (1.4) (0.7)

Gross assets consolidated 0.1 0.1 0.1 0.1

Gross liabilities (1.5) (0.8) (1.5) (0.8)

Less group items:– subordinated debt

1.4 0.7 1.4 0.7

Gross liabilities consolidated (0.1) (0.1) (0.1) (0.1)

ASK (Greenwich) Limited

Profit and Loss for the year ended 31 March 2012

Total2012

Sanctuaryshare (50%)

Total2011

Sanctuaryshare (50%)

£m £m £m £m

Turnover 7.5 3.7 7.1 3.5

Operating costs (7.2) (3.6) (6.8) (3.4)

Operating profit 0.3 0.1 0.3 0.1

Finance costs - - - -

Taxation (0.1) - (0.1) -

Profit for the year 0.2 0.1 0.2 0.1

Balance Sheet as at 31 March 2012

Total2012

Sanctuaryshare (50%)

Total2011

Sanctuaryshare (50%)

£m £m £m £m

Debtors falling due within one year 1.7 0.8 1.0 0.5

Debtors falling due after one year 18.1 9.1 18.5 9.2

Cash 1.0 0.5 1.4 0.7

Gross assets 20.8 10.4 20.9 10.4

Creditors: amounts falling due after more than one year

(17.6) (8.8) (18.2) (9.1)

Current liabilities (1.9) (0.9) (1.6) (0.8)

Gross liabilities (19.5) (9.7) (19.8) (9.9)

Net assets 1.3 0.7 1.1 0.5

Capital and reserves

Share capital - - - -

Profit and Loss account 1.3 0.7 1.1 0.5

1.3 0.7 1.1 0.5

Gross liabilities (19.6) (9.8) (19.8) (9.9)

Less group items:- subordinated debt

1.4 0.71.4 0.7

Gross liabilities (18.2) (9.1) (18.4) (9.2)

ASK (Greenwich) Limited is a wholly owned subsidiary of ASK (Holdings) Limited. The share capital of ASK (Holdings) Limited is held 50% by Kier Limited and 50% by Sanctuary Housing Association. The principal activity of the Company is the design, construction, refurbishment, financing and maintenance of three care homes in the Greenwich area under an agreement with the London Borough of Greenwich.

Sanctuary Housing Association’s share (50%) of the Profit and Loss Account of ASK (Greenwich) Limited for the year ended 31 March 2012 is reflected in the audited financial statements. Sanctuary has also included its share of the gross assets and gross liabilities of the joint venture.

Notes to the Financial Statements (continued)

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33. Post Balance Sheet eventsOn 2 April 2012 The Hertford Housing Company Limited began the process of being wound up. The Company’s operations will be managed by Sanctuary Management Services Limited going forward.

On 2 April 2012 Sanctuary Maintenance Contractors Limited took transfer of all 911 staff from Sanctuary Housing Association’s Maintenance Services division. The transfer was subject to the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006.

On 26 April 2012 the Group, through its subsidiary Sanctuary Capital Plc, issued £300 million 5.0% Secured Bonds. The proceeds of the bond issue will be used to contribute towards a £750 million national development programme over the next four years.

On 27 June 2012 the Group completed the transfer of engagement of its subsidiary Asra Midlands Housing Association Limited to Asra Greater London Housing Association Limited. In return Sanctuary Housing Association acquired a portfolio of seven care homes and two supported schemes.

There were no other significant post balance sheet events requiring adjustment to, or disclosure in, the financial statements.

Notes to the Financial Statements (continued)Advisors

Independent auditors

PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Cornwall Court 19 Cornwall Street Birmingham B3 2DT

Bankers

Barclays Bank plc Barclays Corporate Social Housing Team Level 27 1 Churchill Place London E14 5HP

Bank of Scotland plc Bank of Scotland Commercial New Uberior House 11 Earl Grey Street Edinburgh EH3 9BN

Legal advisors

Wragge & Co LLP 55 Colmore Row Birmingham B3 2AS

Registration numbers

Homes and Communities Agency: L0247

Industrial and Provident Society: 19059R

Sanctuary Housing Association is an exempt charity under the Charities Act 2011

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This report can be translated into other languages, large print and Braille or recorded onto an audio CD. Please contact the Sanctuary Group office below for details.

Sanctuary Group Chamber Court

Castle Street Worcester WR1 3ZQ

Tel: 01905 334000 Fax: 01905 334958

www.sanctuary-group.co.uk

Sanctuary Group is a trading name of Sanctuary Housing Association, an exempt charity Registered office: Chamber Court, Castle Street, Worcester WR1 3ZQ

Registered as a provider of social housing with the Homes and Communities Agency No. L0247 Industrial & Provident Society No. 19059R

Published: August 2012